I’m adding to my list another reason I’ll (probably) never buy a condominium. Condos and townhouses often require sellers to pay a fee when sold. The fee is often a percentage of the sale price, such as 1%. I didn’t know about this fee when first contemplating whether I’d ever buy a condo.
Unfortunately, it’s becoming more common for houses to require a similar resale fee. New housing developments are increasingly including a resale fee clause that requires sellers, no matter how many, pay the developer 1% of the sale price for 99 years. The money is intended for the developers, not the real estate agents.
Here’s how this works in theory. A third party manages these resale fees, selling the future income to investors, and provides a lump sum supplied by the investors to the developer. The money up-front helps spur economic development now, at a time when economic development is important, but the “natural” market isn’t supporting the level of development developers want to see. So the developers get immediate cash and the investors get the cash flow as houses are sold and purchased for the next 99 years.
Alternatively, builders can keep the 99-year income stream, avoiding the issue of securitization for investors but missing out on the cash up front.
Like all new fees, they are typically misunderstood by the consumer. According to a recent article on CNN, many homeowners didn’t even know these fees were in their contracts. Many real estate agents are unfamiliar with this practice.
This is yet another cost to consider when determining whether it’s better to rent or to own a home.
Updated October 13, 2016 and originally published August 24, 2010.