Standing Up to Private Transfer Fees, Posted by Brooke

I’m proud that two years ago my state association, the Texas Association of Realtors®, stood up to an issue that would have increased the cost of housing and complicated closings.  We helped pass legislation that banned the use of most private transfer fees in residential real estate in Texas.

Private transfer fees are a bit complicated, but they’re important to know about.  They are covenants that claim to run with the title to a property.  Every time the property changes hands, a fee is paid to the original property owner or developer who created the covenant.  The fees have been as much as one percent of the purchase price of the property.  In some cases the fees are being paid for up to 99 years!

We’ve recently been made aware that companies dealing with private transfer fees are marketing their products to developers across the country.  They are bundling these fees so they can be securitized and resold on the open market.  If they succeed in developing a “stream” of these fees to make a credible securitization market, then the use of private transfer fees will increase exponentially because the profit incentive will increase.

Bottom line is this…affordable housing is sacrificed to give financial benefit to someone completely disassociated with the real estate transaction.

In 2008, the NAR Board of Directors voted on a policy against the use of private transfer fees.  But ultimately, we know this is a state matter.  That’s why NAR is offering services to state associations to investigate this issue in their states and evaluate whether they would like to pursue legislation against the fees.

NAR has engaged the services of Robinson & Cole, the firm that serves as our consultant in NAR’s Land Use Initiative.  Robinson & Cole will help state associations write legislation concerning the use of private transfer fees, and NAR will pick up the bill.

To receive this assistance, or to get more information about it, please contact Gerry Allen at NAR at (202)393-1109 or gallen@realtors.org.

In many cases, private transfer fees have created one more hoop for consumers to jump through in order to close a deal.  In the name of making the real estate business run as smoothly and above-board as possible, I hope you’ll ask your state association leaders to consider NAR’s offer of help in this matter.  – Brooke Hunt, 2010 NAR Vice President and Liaison to Government Affairs

Comments
  1. Mark B.

    you guys sure are expending a ton of energy on a potentially new liquidity source for developers to “reapportion” there risk of development costs. Are you saying a 1% fee( that is fully disclosed to the buyer at time of purchase) when the property is eventually sold, is going to “bring down” the real estate market? Seems to be a serious over reach. Was the NAR screaming about incredibly over inflated values of homes or were you giving 70% of your membership kudos for meeting sales goals because anyone could buy a home? I am a real estate agent but I can’t seem to get on the side of the NAR on this issue.

  2. While there appears to be some opposition to private transfer fees, it looks like the overwhelming majority of the respondents I have seen like the idea. It provides needed funding to Real Estate Developers which creates jobs and pays off or down debt. It even provides opportunity for Realtors to sell more lots and/or homes. Sounds like a win-win to me. Why is the NAR apposing this? Where is their support coming from? Most Realtors I’ve spoken to like the idea. Could there be an alternative agenda here and if so, what & why?

    I’m a Realtor and I support private transfer fees!

  3. I have reviewed the NAR Report opposing Transfer Fees and take exception to the position of our association. My research suggests the benefits of transfer fees far outweigh the risks. In fact, I fail to see any risks. Please find below in quotes, excerpts from the NAR Report with my comments & suggestions:

    “NAR believes such fees decrease affordability” – My research suggests a competitive advantage is created for Developers who are able to LOWER property prices (especially on the front end) thereby INCREASING affordability.

    “serve no public purpose” – Perhaps, but we are talking about private real estate transactions, not a public service. As long as we provide full disclosure, we are doing our job and fulfilling our responsibility to our clients.

    “provide no benefit to property purchasers” – When private transfer fees are put in place to fund amenities, infrastructure, etc., in an economy where this might make or break the development, one could conclude they benefit the purchasers by making the development possible and therefore the purchase possible.

    “Because private transfer fee deed restrictions are often difficult to discover, and, therefore, disclose prior to a transaction, REALTORS® risk liability issues” – I don’t get this point. As a Realtor, I ALWAYS recommend the buyers I work with secure title insurance in their name (which requires a title search). With title insurance, transfer fees would be discovered & disclosed as would any encumbrance or deed restriction on the property. I’m in favor of FULL DISCLOSURE and allowing the Buyer to make their own decision to buy or not to buy (or even use the existence of a transfer fee as a point of negotiation to perhaps lower the price). If we all do our job, I don’t see any additional risk here.

    “deed restrictions imposing private real estate transfer fees will position affected properties at a disadvantage in the marketplace” – I don’t see a mere 1% fee breaking the marketplace. In fact I see the opposite. It stimulates the marketplace by allowing Developers to survive and Realtors something to sell.

    “undermine economic stability” – I think this is quite a leap. On the tail end of financial failure caused by irresponsible lending practices, private transfer fees may be just a way to stabilize the economy. It gives Developers needed funding to complete developments, create jobs, pay off or down debt, etc. etc. Sounds more like a stimulus package that is just in time.

    Are we sure apposing private transfer fees accurately reflects the wishes of the membership? I ran into this by accident and have not seen much from NAR on this until I researched it.

    I frankly think NAR is off base on this one. I have spoken with several Realtors that agree with me (and few that don’t). Private Transfer Fees could be a Win-Win in a challenging market. I’m just one guy, but for the record, I oppose the NAR decision on this and think we should rethink our position and look at the big picture. A campaign to encourage awareness, full disclosure and an explanation of all the benefits (or risks) would be a better approach to this issue.

    Having said all that, what about the opportunity this creates? What if we look at this as an opportunity for Realtors to work with Developers (Exclusive Representation) to facilitate the creation of private transfer fees. What if we see this as an opportunity to help Developers who would reward our efforts by giving us more (or exclusive) listings in their development? I see opportunity written all over this.

    Just my two cents. Thanks for reading.

  4. Mark B.

    The NAR is not going to rock the Obama boat. As long as he keeps extending the taxpayer funded tax credits it’s all good!

  5. How does apposing PTF’s support the Obama agenda?

  6. Mark B.

    Joe,

    Opposing PTF’s does not support the Obama agenda. I was referring to the NAR’s complete lack of ideas or contributions to help the market that doesn’t depend on the taxpayer to assist them in selling homes. The NAR spends millions lobbying the federal government to continue their stranglehold on the industry but never really assists their own industry in difficult times. They just oppose creative ideas(private market) like PTF’s (of which they really have no idea how they would actually help their industry) but they are more than happy to sale a house to someone who is getting an $8,000 taxpayer credit to purchase. It is really says a lot about our government and how it works. Pathetic really.

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