Home builders are tacking on fees to sale prices, threatening both the home’s resale price and homeowners' long-term investments.
Just when Americans began to breathe easier with new curbs on credit and debit card fees, a new homeowners fee emerged. That is, the “resale fee” paid to the builder by all of a home’s future sellers.
The New York Times reports the builder charges not just the home’s first owner, but subsequent owners who sell during the next 99 years. Typically, the fee is 1% of the sales price — $2,000 on a $200,000 home, $5,000 on a $500,000 home. It takes the form of a deed restriction that the property’s owners have no power to undo, and potentially reduces the home’s resale price.
Also called a “capital recovery fee” or “private transfer fee,” the requirement may be deep in legal documents buyers don’t always read. The Times cites buyers who were unaware of the fee until they closed on the sale, at which point it was too late to negotiate an offsetting reduction in the home’s sales price.Does this fee provide anything to the home’s first and future owners? Perhaps, but there are factors to consider.
Freehold Capital Partners, a firm that helps builders set up the fee, argues on its website that the charge is a “win-win” solution to problems faced by both builders and home buyers. Builders use the fee to spread the costs of land improvements over a succession of owners rather than concentrating them on the home’s first purchaser. As a result, each home buyer should pay less, Freehold says.
Freehold argues that homebuyers aware of the fee will negotiate an offsetting reduction in the purchase price. But because of that, it does not appear to be in the builder’s best interest to trumpet the fee. In fact, Freehold’s website promotes the fee as a way for builders to increase their profits through a long-term “income stream,” or by selling rights to future fee income to investors like hedge funds.
While a fee, assuming it is adequately disclosed, should play into the supply-demand equation and be reflected in the home’s sales price, the home buyer should keep the potential downsides in mind.