You simply have to applaud the creativity of Wall Street investors and property developers… when a door for making money closes they know how to knock a hole in the wall and make a window for cash to pour in.
In a recent trend that has been making it’s way across the country, property investors and developers are adding “Private Transfer Fee” covenants to the long list of documents that a buyer of a new property or home will sign during their purchase. In many cases, this new covenant specifies that for a fixed period (up to 99 years) the investor/developer will receive a percentage (often about 1%) of the gross sales price for any sale of the property. Put simply this means if you buy a property for $300,000 and sell it 5 years later for $400,000, you’d be writing a check for $4,000 to the original developer/investor named in the covenant – and this practice would be binding for all owners of the property until it’s expiration.
Of course, while unpalatable as this seems there are arguments for why such a fee is fair – the best one I can find is as an offset for the ‘infrastructure’ investments that a developer may put into a community. This stream of income would enable them to reduce the initial cost of the property to buyers by spreading development costs over the life of the covenant. A more cynical (or in some cases just realistic) persons might think that this is just a political way of saying ‘increased profit’.
It’s understandable that many people are strongly opposed to this sort of fee, including Sarah, myself and the National Association of Realtors. To date, many states have passed laws against these sort of fees and now the National Association of Realtors is taking the fight to the Federal level to hopefully have these practices outlawed all together.
This will be yet another item we’ll be looking for when we help people buy new construction and other newly developed properties.
Here’s more information: