The California Association of Realtors is mounting a legislative battle against a growing practice California homebuilders are using to generate additional revenue on the homes they sell.
In the last few years, developers have begun using private transfer taxes, which tax the transfer of property often in perpetuity. Using this tool, developers are able to collect fees on the homes they’ve built long after the houses are first sold.
The fees, which range from .05 to 1.75 percent of a home’s sale price, are often noted in home sale documents, but homebuyers often miss them or don’t understand them, said Alex Creel, chief lobbyist for California Association of Realtors.
“You are burdening future home buyers out into perpetuity,” said Creel. “You are burdening those homebuyers with the cost of items or things, some of which benefit the homebuyer, but don’t have to.”
To fight the fees, the association is sponsoring a bill that would ban them. The bill, SB 670, being carried by state Sen. Lou Correa, D-Anaheim, is expected to be heard in committee next month.
The association first learned of this fee, which has been used by developers to generate funds for environmental issues near projects, when confused real estate agents began calling the association a few years ago.
It is unclear exactly when the tax was first used by developers, but the fees likely have not been challenged until now because there have been few resales of new homes in planned developments, said Delores Conway, director of the Casden Real Estate Economics Forecast at the USC Lusk Center for Real Estate.
In some cases, private transfer taxes are used for things like community projects and habitat preservation. But because the tax is not regulated, a developer can do whatever it wants with the revenue.
According to the Realtors association, East West Partners, which has built Gray’s Crossing, a Lake Tahoe-area development near Truckee, charges a 1.75 percent transfer tax. Creel says it is the highest fee he has come across in his research.
The fee for Gray’s Crossing buyers is used to fund three community and environmental foundations. The first phase of Gray’s Crossing opened in 2004 and another phase of development is ongoing there.
“We see the transfer fees as a great community benefit,” said Bill Fiveash, vice president of sales and marketing for Tahoe Mountain Resorts, the sales and marketing firm that is selling land at Gray’s Crossing. “We think they all drive up real estate values in the long run.”
Fiveash said that East West Partners is “not taking a stand” on Correa’s bill. “We think they are good for the community,” he said. “We have made all of our buyers perfectly aware that the fees exist.”
