As a homebuyer, you’re aware that you’ll eventually have to pay closing costs once you find a home and your offer is accepted.
Indeed, real estate transactions typically come with a variety of fees, including property taxes, transfer taxes, or recordation taxes imposed by state and local governments when a home passes hands.
But you should also be aware of a surprise cost that you may have to pay now—or that might come back to bite you when you’re ready to sell your property: a private transfer fee.
Private transfer fees—also known as “capital recovery fees,” “recovery fees,” or “resale fees”—are required when certain homes are sold. Here is the breakdown of when these fees are imposed and who has to pay them.
What Are Private Transfer Fees?
In a nutshell, a private transfer fee is a set amount that developers, homeowners associations (HOAs), or individuals require to be paid each time a property changes ownership.
Developers sometimes put this covenant in place when a new community is built, requiring that a transfer fee be paid each time a property is sold. Depending on the home and where it’s located, the fee may be in place for up to 99 years.
The fee, either a flat fee or a percentage of the sales price, is typically paid by the seller.
In recent years, regulatory changes have made these fees less common. And many states prohibit private transfer fees in most situations, according to the National Association of REALTORS®.
But there are still a handful of states that charge anywhere from a $2 flat fee (Arizona) to a 4% tax on the total sales price (Deleware). Ask your real estate professional about whether or not there is a transfer tax in your state.
Private Fees Vs. HOA Fees
Homeowners and buyers need to be aware of the differences between fees charged by developers and those imposed by homeowners associations.
- Private transfer fees: These fees were popular during the housing downturn when funds for development were sparse. The fees were used by builders to pay for the cost of roads, sidewalks, sewer systems, and other infrastructure. Developers said the fees allowed them to spread infrastructure costs over a longer period of time rather than as a short-term cost to initial buyers in a community. However, the Federal Housing Finance Agency(FHFA) issued a ruling in 2012 that prohibits private transfer fees on loans guaranteed by Fannie Mae, Freddie Mac, and the Federal Housing Administration. The FHFA’s view is that the fees were merely a revenue stream for builders rather than a necessity for the development of infrastructure.
- HOA fees: Homeowners associations often charge a small fee when homes are sold within the community in order to pay for services and capital improvements. These fees generally run between$200 to $250 but can run higher. The FHFA says lenders can make loans with transfer fees that are charged by HOAs because those fees benefit the community rather than developers.
How Buyers Can Find Out About A Transfer Fee
Most properties don’t include a private transfer fee. But buyers should be aware of the existence of this extra fee and do some digging to see if they are on the hook for it. There are two ways to find out about a transfer fee on your home:
- Sales disclosuresshould include the existence of the fee and an explanation of why it is imposed. Even if the seller is the one who pays it when you buy, you will eventually need to pay the fee if you sell the property at some future date.
- If a private transfer fee is not disclosed at the time of the contract, the titlereport issued during the sale will typically include this information. The fee should be listed as a covenant against the property.
Keep in mind that even if a private transfer fee isn’t imposed, you may have to pay an HOA fee when you buy or sell a home within an HOA or condo association. So always review association documents to determine whether a transfer fee is imposed when properties change hands and the amount of the fee.
And if a transfer fee is imposed, buyers typically have only two options: negotiate to ask the sellers to pay the fee or walk away from the transaction and purchase elsewhere.
Before you do that, be sure to consider the benefits to the HOA of a transfer fee, how much you want the home, and whether the cost is negligible enough to ignore.
Courtesy of Realtor.com