Home Resale Fees
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.
Article comments
I’ve paid the fee in a co-op. It was there for everyone to see and in my opinion had zero effect on the price. If she does her job, your attorney when you’re buying will find it doing your due diligence. But again, it’s a 1% fee on the *sale* years down the road. That should not be a real impediment to purchase, and I cannot see it having any real effect on the price because the purchaser isn’t paying it now, she’s maybe going to pay it later.
I never heard about this fee — does it vary by condo association or state?
In the CNN article, driving the price of the house down is touted as a *benefit* by the builder.
Honestly this seems like a “there’s no such thing as bad publicity” ploy to me. Hey, it works for Spirit Airlines.
I am a real estate investor and have never come across this fee. I am in MN so maybe its not common here (I have bought many townhomes but not condos).
As far as this new fee which actually goes to the builder and not the association, that is just flat out thievery. I never put it passed anyone or any group to come up with new ways to be greedy crooks. I am quite confident this one will never get to first base. I wouldn’t even believe it was real if you hadn’t linked the CNN article. It’s so egregious that I am confident the outrage will never let it get to any level of success without it either being outlawed or with people refusing to participate in buying such properties unless they get a nice discount which would defeat a good portion of the tactic.
It’s not about the fee itself, though it is a stupid fee from a consumer perspective, it’s about how the fee is hidden, most people aren’t expecting it, even real estate agents don’t like it, and finally, with other houses on the market that don’t charge the fee, people may be less willing to buy, driving the price of a house you’re trying to sell down.
If the prospect of one day paying somewhere between $3000-$7500 is going to keep you from investing in real estate, then you’re not really serious about buying anything. Yes, it’s not a small amount of money, but should it keep you from making potentially a financially (let alone emotionally) rewarding experience? I say no.