The other side of private transfer fees

Dennis Norman

Last month I wrote an article about private transfer fees drawing fire from the Federal Housing Finance Agency which cast private transfer fees in a negative light. Freehold Capital Partners, a company that, according to it’s website, partners with real estate developers to utilize private transfer fees (PTF’s) has come out in defense of the use PTF’s and show that they do benefit homebuyers as well as the community.

The way in which Freehold Capital Partners structures their PTF’s involves five percent of the fee going to a not for profit organization that provides services to benefit the community.

According to Freehold, their has been a “aggressive misinformation campaign” waged against capital recovery fees (also called private transfer fees (PTFs). Freehold says these fees are “used by real estate developers to spread development costs over all property owners who will benefit from the improvements over time”. The fee covers the initial investment made to install infrastructure within developments, such as roads, sewer lines, water pipes, etc.

There are important benefits of private transfer fees that are being overlooked at a potentially serious cost to the American economy,” said land economist, Tom McPeak, Ph.D. “PTFs have been in widespread use for decades and there is no evidence of harm to consumers or lenders to support any claim that the use of these fees is detrimental.”

According to Freehold Capital Partners, benefits of the Private Transfer Fees include:

  • Lower the cost to homebuyers: By spreading the initial development costs among future buyers, developers are able to lower the sales price on the property. The lowered price reduces closing costs and interest payments on home mortgages. PTFs provide developers with the revenue necessary to finish half-completed projects — increasing the value of homes already built, sold and occupied in those developments.
  • PTFs provide developers with the liquidity needed to restart stalled projects and fund new developments: PTFs offer a timely solution to the downward spiral of the housing market and overall economy. When developers restart projects they hire construction crews, electricians, surveyors and other workers and increase demand for construction materials. Each project stimulates the economy in the community where the development is located. In addition, PTFs provide the funds that can be used to repay underlying bank loans that are dragging down the balance sheets of community banks across the country.
  • PTF agreements require five percent of every transfer fee go to a non-profit organization that provides services to benefit the community: This requirement is administered by a trustee over the term of the fee—it cannot ever be altered or modified. Non-profits use the funds for clean air, clean water, the environment, open space, parks, affordable housing and a wide variety of other purposes that benefit the community, with no strings attached.

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