Transfer Fees - Realtor Perspective and Property Management View

TRANSFER FEES: REALTOR PERSPECTIVE

It seems there are several new fees cropping up (just like taxes), that affect the value of your real estate. You may not notice them until you sell, but they could lessen the value of the house you live in. The following explains why.

We have always had deed recording fees, one type of transfer fee.

While most of these monies go to the state, some go to the county. Many people are familiar with the Town of Hilton Head Island’s transfer fee, which remains on the island. It’s hard to guess how much the former adds to the value of your property, but it’s easy to drive around the area, see the open spaces the Town has purchased, and realize the value added to all properties by our local transfer fee.

A third type of fee has recently been imposed by more and more planned unit developments (PUDs), and some fees are very high ($15,000 or more). If you are considering buying property in a PUD, you should ask about these fees. They should be listed on the Residential Property Disclosure Statement, Item 21, supplied by every seller.

The fees are used to pay for capital improvements, enhancements, maintenance of common areas and amenities, funds (such as insurance), or whatever the Board of Directors and/or homeowners decide is needed. These fees are the same as an assessment, or a tax, but they are levied on buyers of properties, rather than on all owners. In other words, if lagoons in a PUD need to be cleaned out, present owners can avoid the additional fee by taxing new property owners.

The Realtors Association is concerned about the feasibility of such assessments on new owners of real estate in PUDs that have these types of “transfer fees.” For one thing, it is impossible to properly plan for improvements when no one knows how much revenue will be coming in to pay for them.

For example, if a PUD needed to improve roadways, knew the cost would be $1 million, and planned to assess each new owner between 1/4 and 1/2 percent of the sale price, how many sales would it take to cover the cost? And what if you knew the number of sales for 2005 and planned based on that number? Sales in 2006 were down one-third from 2005, so you might have to delay the project or raise the percentage.

On the other hand, let’s say you had 5,000 property owners. You could raise the $1 million by charging each of them $200, properly plan for the road repairs and have the money almost immediately. (The present owners are the ones who wore down the roads anyway, so they shouldn’t complain, right?)

Realtors have expressed their concerns to the governing bodies of most of the PUDs in the area. They have encouraged PUDs to take a fairer approach (and one that doesn’t make buyers cringe) by evenly distributing the fees, to improve all properties, among all homeowners. Those voting for transfer fees may not intend to sell their properties and can avoid the expense of assessment by attaching the fees to new owners.

The truth is, however, that, sooner or later, everyone sells. And even though the purchaser is supposed to pay transfer fees, these fees (like all fees) are actually negotiable. So the seller will either pay them, or the purchaser will reduce the offered price – either way, the result is less of a net amount to the seller. Can you see the possible loss of value of a home in a PUD?
All owners want to add value to their properties. If you think a transfer fee will do this, you should support it. If you think transfer fees should be split between all owners who will benefit, then you should let your decision makers know your thoughts before they establish new transfer fees, or increase the ones they currently have in place.

Written by Eleanor Lightsey O’Key, EVP, HH Area Assoc. of Realtors

PROPERTY MANAGEMENT PROFESSIONALS OFFER A DIFFERENT PERSPECTIVE

Hilton Head Island is known as a world-class resort community that draws investors from all over the globe who purchase property in the area’s gated communities. But as these communities and their amenities age they must remain competitive, not only in the area, but also in the global real estate market. Otherwise, people will go somewhere else to retire, play golf and vacation.

To remain competitive and up-to-date, property managers are faced with the challenge of finding funding for continuous improvements. And rather than assess property owners with fees on a project-by-project basis, many planned urban developments on Hilton Head have implemented a Capital Transfer Fee to create a special fund for continuous improvements. In theory, buyers will pay this fee when they purchase property in the community as part of the real estate sale contract. In reality, everything in a property sale is negotiable. So sellers may end up paying, depending on contract terms.

Regardless of who pays the fee, property managers assert that this is a benefit. According to property managers, communities and their amenities must be kept up to date in order to maintain property values in these gated communities. One Hilton Head Island community recently implemented a Capital Transfer Fee of one-quarter percent of the sales price, while another south end community passed a Capital Transfer Fee of one half percent in their March 2006 meeting.

According to a few property managers, the enhancement fee is placed in a special account and must be plowed back into the community. This account is only tapped for special projects, such as bike paths, pools and clubhouse improvements. The money can’t be used to pay salaries or to cover other expenses that the regular community fees are used for. And according to property managers, they haven’t had any trouble passing these fees with the community boards of directors and property owners.

Property managers also argue that owners don’t want special assessments and they don’t want their fees to double. And several communities in the area have implemented these fees.

Historically, the only source of improvement funds was to constantly assess a membership when a new project was needed, said property managers. This approach means selling each project to the community property owners, gaining approval for the one-time fee and collecting the money.

But assessments can come at a bad time for property owners and they may be reluctant to approve them. Plus, many feel that one generation of property owners shouldn’t have to pay for something that will remain in the community forever. Assessing current property owners means that one generation is paying for something future generations will use, said property managers.

Because communities need regular upgrades, new developments and many existing communities are addressing this on-going desire for improvements as someone buys into a community rather than assessing them after the fact.

With Capital Transfer Fees, a buyer knows the investment they are making up front and that there will be guaranteed funds to keep their property competitive, thus helping to insure property appreciation.

Although some feel that Capital Transfer Fees will have a negative impact on property values, property managers argue that current and future owners will be excited about being part of a community that is dedicated to continuous improvement. And if planned urban developments want to remain competitive, this is the most painless way to do it, according to property managers.

Property managers feel that the majority of developers are building in this type of fee in new properties, and existing communities are modifying their documents to include such a fee if one does not exist. And they argue that the mission of any property association is to maintain and improve property values and improvements are essential for those goals to be achieved.