Private Transfer Fees are a relatively new device in the real estate developer’s toolbelt. A private transfer fee results from a covenant filed in the property records that requires a payment to the original developer each time the lot is sold. The typical fee is 1% percentage of the purchase price and the requirement can last as long as 99 years!!! This covenant creates a lien on the property, so title companies must collect the fee at closing or absorb the cost if they fail to do so.
Developers justify the fee by saying it allows them to spread the costs for infrastructure improvements over many years instead of charging 100% to the first homebuyer. They claim this fee funds the development’s private roads, walking trails, man-made ponds, and other common amenities. Developers say this transfer fee does not just go into their pockets as extra profit, but is paid back to the investor who took the risk of financing the project during these times of tight credit. (Many times, the developer and the investor are the same entity, capisce?)
Are the developers’ claims really true? I’ll give you my opinion tomorrow.