Clever new profit-generating idea from residential developers

[crunchtastic]

http://www.chron.com/disp/story.mpl/business/6937231.html

I don't know what's more ridiculous, that developers liken themselves to artists, or that with a straight face they tout

a 99-year, virtually hidden income stream as an important new financing tool. I worry that with that puppet Perry still in office--this might actually stand a chance of becoming legal in Texas.

[Ross]

Becoming legal? It is already legal. I wouldn't buy a property with this sort of encumbrance. The transfer fee is a reason I wouldn't buy in Garden Oaks either - spend $300k on a house and pay the HOA an additional $2k? No thanks. Both practices ought to be illegal.

[Marksmu]

http://www.chron.com...ss/6937231.html

I don't know what's more ridiculous, that developers liken themselves to artists, or that with a straight face they tout

a 99-year, virtually hidden income stream as an important new financing tool. I worry that with that puppet Perry still in office--this might actually stand a chance of becoming legal in Texas.

I saw this on Chron.com and first thing I thought, was is it on haif yet? Yup it is.

My thoughts, are this is just outright wrong. If the property is sold at a loss, does the developer have to kick in the short fall? I seriously doubt that they do. This is just another slimy sneaky way of a developer making even more obscene profits off the back off people working. Im all for free market, but this type of fee is hidden...its the type of thing people dont even think about.

I also found the fact that they think they are artists, quite humorous. I cant think of much more ugly than the new neighborhoods where every other house is the exact same.

My favorite line was this: "Maybe you planted a tree, added on a room, or rehabbed a home ..... ” the Web site said in 2007. “Fifty years from now, when a family is enjoying the property that you improved, and making a profit by selling the property you improved, why shouldn't you benefit?"

WHAT?! Why shouldnt you benefit!? are you freaking kidding me? You were paid when the work was done! You benefited then. The person who took the financial risk of loss for the long term is the person who gets to keep the long term benefit. This type of thing never fails to get me worked up. Its crap, the whole idea should be criminal. It does not surprise me one bit that they are using the green movement to make it appear legit....Apparently you can tax anything, charge anything, close anything, or regulate anything as long as it has an environmental impact.

[kylejack]

Sounds fine to me as long as its clearly disclosed. Some people might want to save a little money on the front when they're new homeowners are be willing to take the hit down the line when they're better off.

[Fringe]

Just seems wrong that they get you coming and going but half of the fees associated with purchasing property in this state are also ridiculous. 

[travelguy_73]

Sounds fine to me as long as its clearly disclosed. Some people might want to save a little money on the front when they're new homeowners are be willing to take the hit down the line when they're better off.

But in reality, do you think they are going to adjust the price at all? Any savings, when you work it into a standard mortgage, is going to be immaterial.

[jgriff]

I guess it could theoretically make the developer think more long term when creating a development. It gives them a vested interest in long term home values. I doubt it would do that in practice though. Most companies are thinking 1 month ahead not 20 years.

[AtticaFlinch]

“Just like authors who write books and musicians who write songs that will be enjoyed for generations to come, those who improve property are also engaged in the creative process, and the economics of the transaction should reflect that reality,” a Freehold brochure says.

Heh... until I can illegally download a house, I don't think this comparison holds up to any scrutiny.

I don't think the idea itself is too unreasonable, but certainly the 99 year time frame is. Maybe one year or five years is more appropriate.

Two questions though:

1) What happens if someone buys the property only to demolish the structure? Many houses, especially inside the loop and out west, are bought just to be destroyed and rebuilt. Most of those aren't 100 years old. Would a potential buyer/seller still be responsible for paying this fee?

2) Does this apply just to real estate, or will this idea be extrapolated to apply to all manner of property? Will Ford or Toyota have to be paid 1% every time one of their cars are resold. Will I have to pay GE something to sell a used washer/dryer set on Craigslist? It seems to me if this is allowed to become policy, it'll open up a can of worms that'll amount to little more than corporate piracy.

[TheNiche]

I'm thinking that mortgage lenders will just build the title transfer fee into their underwriting and end up offsetting the benefit by accounting for the risk. And if I were a developer, I'd be very skeptical because builders may be squeamish about buying lots and building homes in a subdivision that isn't comparable to existing subdivisions or that might ultimately limit their buyers' access to credit.

Having said that, if some combination of gullible people all want this arrangement, I don't see anything inherently wrong with it. Different people have different circumstances and objectives. As long as they understand what they're agreeing to...it's not the most difficult concept to grasp.

Becoming legal? It is already legal. I wouldn't buy a property with this sort of encumbrance. The transfer fee is a reason I wouldn't buy in Garden Oaks either - spend $300k on a house and pay the HOA an additional $2k? No thanks. Both practices ought to be illegal.

I would also be unlikely to take on a title transfer fee. But I would be willing to purchase a home or condominium with an HOA fee. That fee is what allows the HOA to pay for rec centers, landscaping, maintenance to access gates and roads, enforcement of deed restrictions, etc. A community without maintenance goes downhill QUICK. And a mortgage lender will factor that into your ability to afford they payments on a particular home, but they won't generally hold it against you because maintenance preserves equity.

[TheNiche]

I guess it could theoretically make the developer think more long term when creating a development. It gives them a vested interest in long term home values. I doubt it would do that in practice though. Most companies are thinking 1 month ahead not 20 years.

Heh, it'd be interesting if a relatively high title transfer fee were only applied toward capital gains from the sale of a house.

[porTENT]

Heh... until I can illegally download a house, I don't think this comparison holds up to any scrutiny.

I don't think the idea itself is too unreasonable, but certainly the 99 year time frame is. Maybe one year or five years is more appropriate.

Two questions though:

1) What happens if someone buys the property only to demolish the structure? Many houses, especially inside the loop and out west, are bought just to be destroyed and rebuilt. Most of those aren't 100 years old. Would a potential buyer/seller still be responsible for paying this fee?

2) Does this apply just to real estate, or will this idea be extrapolated to apply to all manner of property? Will Ford or Toyota have to be paid 1% every time one of their cars are resold. Will I have to pay GE something to sell a used washer/dryer set on Craigslist? It seems to me if this is allowed to become policy, it'll open up a can of worms that'll amount to little more than corporate piracy.

Your questions remind me of the recent court ruling about gene patents. Intellectual property rights are going to be the site of many upcoming battles in the near future.

But if this does in fact pass muster, then I'll be the first in line to apply for IPR's for the Greek temple orders or even the gabled roof! And then all your base will belong to me...

[infinite_jim]

If anybody should get mailbox money from the fee it's the architect.

[TheNiche]

If anybody should get mailbox money from the fee it's the architect.

Maybe you mean the land planner. Let's not confuse builder with developer or vice versa.

[infinite_jim]

I was just kidding, but yes, the Land Planner.

[LTAWACS]

This is utter crap. We should tell our representatives in Austin to close the loophole. Ugh.

[keepitlow]

That's kind of like building up a lifetime of work and savings, paying taxes on it over ther years and when you die you leave it to your heirs and then the government want to tax your kids for receiving it....OH, WAIT!!!!!! THAT ALREADY HAPPENS.

[Yankee_in_TX]

The Houston consumer law community has been kicking this one around - not happy.

For those of you shrugging - the problem is when ALL developers do it and buyers simply don't have a choice because it is in every contract. Need to stomp this out now.

As for artists - I love my house, but there are 30-50 almost identical to it in greater Houston and another 50 or so different due to smaller land plots requiring them to be different. Pshah.

[TheNiche]

For those of you shrugging - the problem is when ALL developers do it and buyers simply don't have a choice because it is in every contract. Need to stomp this out now.

There are several million homes in the Houston area already. Leaving aside from the discussion that it doesn't seem like a deal that most developers would want to embrace in the very first place...it strikes me as impossible that consumers will ever find themselves lacking a choice in the matter.

If and when this starts catching on, then your concern will at least be merited, whether a legislative response is or not.

[Yankee_in_TX]

There are several million homes in the Houston area already. Leaving aside from the discussion that it doesn't seem like a deal that most developers would want to embrace in the very first place...it strikes me as impossible that consumers will ever find themselves lacking a choice in the matter.

If and when this starts catching on, then your concern will at least be merited, whether a legislative response is or not.

I'm not saying legislative response per se- but how many things do we have the freedom to 'choose' on and the contracts are horribly un-consumer friendly - cell phones, cable/satellite TV, etc. I'd hate to see this provision become common place in deed restrictions.

[TheNiche]

I'm not saying legislative response per se- but how many things do we have the freedom to 'choose' on and the contracts are horribly un-consumer friendly - cell phones, cable/satellite TV, etc. I'd hate to see this provision become common place in deed restrictions.

You're citing natural monopolies and oligopolies as examples. Do you not see a problem with that?

[AtticaFlinch]

You're citing natural monopolies and oligopolies as examples. Do you not see a problem with that?

There aren't too many residential developers out there either, and I'll bet after the dust settles from the 2009 recession, there will be even fewer than there used to be. The only way to really circumvent this new fee would be to purchase a used home - unless the fee is allowed to be made retroactive on the sale of already constructed homes.

Or you can build a lean-to.