Would you be willing to pay the original builder a fee when you resell your home? That’s an obligation some developers are trying to slap on homeowners in their communities.

Many condo and townhouse dwellers are already familiar with the “flip tax,” more formally known as a resale fee. Typically calculated as a percentage of the sale price, it’s a fee due to the condo association or community when an owner sells. These charges fund common-area maintenance or provide a boost to reserve funds, which benefits the association’s homeowners.

But in some new developments, homebuilders are including in contracts a 1% fee to be paid to them every time the house is sold — for 99 years. And the money doesn’t go for improvements or upkeep: It’s just money in the builders’ pockets.

That has the real estate industry and consumer protection groups up in arms.

“It’s of no benefit to consumers,” said Kathleen Day, of the Center for Responsible Lending. “It’s another innovative way to price gouge. Every extra dollar they suck out of people’s wallets takes away from other spending. It’s not good for the economy.”




  1. Lou Minatti says:

    No one is buying houses anyway so it’s kind of a moot issue. Besides, if you don’t like the contract, don’t sign it. It’s the seller’s loss.

  2. joshjellel says:

    One benefit to the buyer is that it ensures that the builder stays in business and can honor homeowner warranties.

  3. Lou says:

    Another crap deal for the sheeple.

  4. Maricopa says:

    Hmmm. A 99 year warranty ought to increase the home’s value substantially.

    No warranty? No 1%. Simple.

  5. Improbus says:

    Let’s see how many of these houses they can sell. Har!

  6. stopher2475 says:

    Ughhh. Reminds me of the fee I had to pay my condo association to join so I could have the privelige of sending them a check every month. What a scam.

  7. Benjamin says:

    I am sure the builder would take out that provision in this market if you refused to close with it there. I wouldn’t sign if I saw something like that in the contract.

  8. JC Wise says:

    What’s the difference between this and royalties on music? We can’t sing “Happy Birthday” in public without sending someone a check. Seems fair to a point.
    jc

  9. sargasso_c says:

    The builder could just rent the nails to the owner, payment at time of sale.

  10. chuck says:

    Builders come and go. Associations may change or disappear. But governments (and taxes) last forever.

    Here in Vancouver, BC, we have the “property transfer tax” which is paid, by the buyer, to the government, every time a property is sold. The rate is 1% on the first $200,000 and 2% on the rest. And since the average price of a house in Vancouver is > $500,000 it means the government makes a crap-load of cash on every transaction.

    The purpose of the tax was to reduce “flipping” of properties, particularly “pre-sales” where a house could be bought before the developer has started building it, then sold again and and again while it was still being built.

    Oh and for those of you who think that paying the developer 1% will insure they honor the warranty – keep dreaming. I’d bet the contract has you paying the 1% to a “separate” company which exists only to collect the fee,

  11. BuzzMega says:

    A similar fee should be on all copyrighted material.

  12. MrMiGu says:

    #12

    So I can sell my ‘used’ mp3s?

  13. wetback says:

    Unless the construction company copyrights the design of the house, i aint paying for SHHHHHHHit.

  14. Dallas says:

    Simple solution – don’t buy from that builder.

  15. MikeN says:

    Big deal, you have to pay more than that every year to your local or state government.
    And if the price of your house doubles, that means you have to pay twice as much every year for staying in the same house, or you can move to North Dakota.

  16. MikeN says:

    How would the builder find out?

  17. Maricopa says:

    # 13 MrMiGu
    So I can sell my ‘used’ mp3s?

    Are they still in good condition?

  18. moi says:

    A couple years ago, when flipping homes got to be so bad around here, A couple developers instituted a contract policy to people who bought their new homes. If they sold it within the first 3 years of ownership the developer got 30% of any equity. Never really heard how that worked out. All though I know one of the developers is now in bankruptcy.

  19. Awake says:

    This kind of fee applies only to fools that buy cookie cutter McMansions, in planned communities, with tiny back yards, with tyrannical community associations that dictate what color your car can be, waaaay overpriced, basically wood and cardboard structures that will not last 99 years anyway. If they are stupid enough to buy into that kind of house and lifestyle, then they are stupid enough to sign on for this fee.

    Now suppose that I bought a house with that special “pay the builder every time” resale clause, but then when I sold it 3 years later, I forgot to include it in the resale contract. The new buyer has not agreed to the fee, so when he sells the house, he is not bound to pay it… so does the construction company come after me every time the house is resold from then on?

  20. justSayin says:

    Fight to get these clauses in homeowner’s contracts banished in your state. I did in mine…

  21. Mr. Fusion says:

    For most buyers this would be a poison pill.

  22. ECA says:

    A copyright FEE, for building the home??

  23. Counterweight says:

    If house values go down, will the builder have to pay me 1% ?

  24. Lou Minatti says:

    “Simple solution – don’t buy from that builder.”

    Bingo. This will die on the vine.

  25. Hames Jemphordian says:

    I’m a builder. This fee is not only fair, it’s necessary in some situations where the builder is servicing the homeowner association. You’re not going to see this stipulation generally in scattered site (build on your lot) situations – it’s for builder-developed communities where there are green commons and things like that. The same thing has been going on for decades but the payment is to the homeowners’ associations or property management companies, etc.

    People who make knee-jerk statements and assume this is just lining the builders’ pockets are completely off-base. But this is America, where idiots like Sarah Palin can be taken seriously- so I’m not surprised.

  26. Glenn E. says:

    Mainly this is going to effect the rich, to which I say boo hoo. They can afford it far better than I can. And it’s not going to apply to 99% of existing homes. Just the most recently built mega-homes. Because from what I’ve been seeing, that what’s only being built these days. No more low cost or middle income housing. Just the high end townhomes, and mega-sized singles. Well if their owners can afford $450k. They can afford 1% less resale value, later. And maybe this charge will encourage them to stick around and be part of the community. And not a bunch of home speculators, jumping from town to town every year. Staying just long enough to ramp up the equity.

  27. Glenn E. says:

    BTW, the money gleaned by this clause, goes to bribe the local state and county offices, to allow the builders all the zoning leeway they want or need. That way the payoffs don’t cut into their regular profit stream.

  28. Sea Lawyer says:

    Isn’t this the same nonsense that artists want (or maybe actually get in some countries) so if their artwork gains value over time, they get a portion of it?

  29. Rick Cain says:

    No suprise. The “ownership society” promoted is actually a “leasing society”, where we no longer really own anything, we lease it for a fee.
    The money is supposed to leave our pockets and end up in the pockets of the wealthy, we’re just consumers anyway.


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