Private Transfer Fees Lower the Cost of Homeownership


Attached please find an analysis regarding the impact of transfer fees on the cost of homeowership. Private transfer fees offer consumers the opportunity to pay less for their home today in exchange for the obligation to pay a transfer fee upon sale. A PTF changes the economics of the real estate transaction by lowering the cost of ownership; a buyer who pays less for a home today will save on various costs associated with homeownership, including closing, carrying, and opportunity costs.

The economic analysis shows that consumers can and usually will save money when developers use transfer fee financing, but it is worth reiterating that regardless of the net effect, a transfer fee represents an alternative, and is always the consumers choice. PTF’s gives consumers a choice, and every consumer can decide whether or not the value proposition from a PTF is fair or beneficial to them.

The simple math is important in understanding how a PTF affects the various aspects of the cost of homeownership, but at the end of the day, every consumer will be affected differently. For instance, an owner who holds his/her property for 1 year is unlikely to mathematically benefit from a PTF, however does a lower sales price enable him/her to qualify for mortgage or pay off debt? On the other hand, an owner who holds his/her property for 10 years will likely mathematically benefit, regardless of the other assumptions. Nevertheless, it is each owners choice whether or not to purchase a home with a transfer fee, and we believe that consumers should have the right to make their own choice, with awareness of all the relevant factors. Disclosure ensures that consumers can make knowledgeable choices, while a ban would simply take away a useful financing tool for developers that also serves to lower the cost of homeownership.

The attached analysis, Transfer Fee Impact Analysis_Cost of Homeownership_Assumptions 1, uses assumptions based on the figures presented in the CRE Draft Recommendation. It shows the costs associated with the various stages of homeownership (purchase, carry, and sale) for 3 consecutive owners. The mathematics are derived from Dr. Tom McPeak’s study on the impact of transfer fees on the cost of homeownership.

Freehold Capital Partners

Transfer Fee Impact Analysis_Cost of Homeownership_Assumptions 1.pdf (66 KB)

Transfer Fee Impact Analysis_Cost of Homeownership_Assumptions 2

Reference_Transfer Fee Impact Analysis_Cost of Homeownership_Assumptions 1

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