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Private Transfer Fee Covenants Give Buyers a Choice About How To Pay for Rising Infrastructure Costs

NEW YORK, March 4 /PRNewswire/ -- Home buyers are increasingly turning to projects funded by transfer fee financing.  Traditionally, 100 percent of the burden of infrastructure costs are put onto the shoulders of first-time buyers.  In contrast, a private transfer fee (also called a reconveyance fee) can be used to more fairly apportion costs and lower the initial purchase price.

A transfer fee simply gives homebuyers a choice about how to pay for infrastructure and improvements.  They can enjoy a lower sales price today in return for their agreement to pay a fee when they sell, or they can choose to purchase a home without a transfer fee. It is their choice.

Dr. Tom McPeak, a Ph.D. land economist who focused on the theme "Integrity is Profitable" in his teaching at the University of Georgia's Terry College of Business, wrote:

"Private Transfer Fees provide a very real opportunity to restructure the economic substance of the real estate transaction in a way that can operate to the benefit of the initial seller as well as each buyer in the transaction chain. It accomplishes this by allowing a property owner to reduce the sales price in return for a future income stream.  This allows a buyer to acquire property for lower transaction costs, it reduces carrying costs, and it allows the buyer to pass along these benefits in a subsequent sale."

Private transfer fees offer significant advantages over other infrastructure funding mechanisms such as Municipal Utility Districts (MUDs) and Public Improvement Districts (PIDs), which typically assess an annual fee based on the ad valorem value.  In fact, a PID assessment is usually billed on the annual property tax statement, collected by the county tax assessor, and forwarded to the developer as reimbursement for the developer's significant capital investment in infrastructure.  

PID assessments usually run for as long as 30 years, which means that a buyer must include this annual assessment (debt) when qualifying for a mortgage.  In contrast, a seller pays a transfer fee once, at the time of the future sale, and therefore does not have to include the fee in the qualification process.  The fee is also more transparent than an annual assessment, which can vary from year to year.

Unlike government transfer fees imposed on all property, every private transfer fee will be paid by a seller who willingly assumed the obligation, and negotiated their price accordingly.

About Freehold Capital Partners: Freehold Capital Partners helps the owners of real estate portfolios more fairly apportion rising development costs. In the process, Freehold helps make home ownership more affordable, and provides consumers with a choice about how to pay for infrastructure and other improvements.

SOURCE Freehold Capital Partners

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