Laguna Niguel Real Estate Blog

Why avoid them? Better to negotiate a lower price up front from your seller & pay the fee later when you sell the property. Seems to me I'd be better off to negotiate a few thousand dollars off the price today, save money on the interest charges on that money the whole time I own it and then let my property's appreciation pay it back for me if/when I ever decide to sell the property.

Calvin C

I find it interesting that you choose to use the word "travesty" when it comes to a tool that enables a seller to sell his/her property at a lower price today, in return for a payment by the persons enjoying the benefits of the property in the future. . .and enables a buyer to postpone paying for a portion of the property (and all the attendant expenses) until they are ready to sell it.

That's an example of the free market at work. Governments in Communist Regimes have tried to restrict the rights of private property owners in the name of protecting consumers before. . . it didn't work out so well for the consumers in the end.

I would encourage you reconsider your opinion about the BENEFITS of transfer fees, especially in a declining market where its getting harder & harder to make a deal.

From your blog you are clearly an intelligent person. So don't just believe the press releases that gloss over the facts. . . like the FACT that under current law a transfer fee must be tied to a benefit that the property subject to it still enjoys. Like the FACT that under current law, all instruments affecting title must be disclosed to buyers who may then choose to buy the property or not buy the property. . . or use their brains and negotiate different terms.

I know that to the sponsors of the Senate Bill it may be a novel idea that responsible adults could actually read and make their own decisions but it works out well for many millions of us around the world.

Incidentally, how long after the Senator is finished "regulating" the private property and contract rights of buyers & seller of real estate do you think it will take him to set his sights on real estate commissions? Afterall, those fees do not benefit the property itself at all.

Respectfully,

RJON ROBINS

Hello,
Thanks for leaving comments.

The Fact is, that private transfer taxes present enough red flags that consumers need someone to highlight them, and explain them. Part of a Real Estate Agent's job is to represent that consumer, ergo I want them to know all of the facts. One of the most important facts that the consumers must consider is, "Does this tax represent more red flags, or more benefits?"

At the end of the day, my job is to make sure that the consumer doesn't get screwed.

You're right in saying that it is simply another element in the negotiation process. Let's compare it to having a roof that needs to be replaced. If my clients have two homes that they like, and one needs the roof to be replaced, sure they can negotiate a lower purchase price, but the roof still needs to be replaced. Just like in the case of the transfer tax, you can negotiate a lower price, but it is still has to be paid.

I'm not quite sure why you decided to use up space trying to compare anything to Communist Regimes.

I still haven't seen the benefits that you mention, at least, I haven't seen any benefits on the consumer buyer side of the transaction. Maybe you could explain that more fully, and allow the readers of this blog to "use their brains."

Again I appreciate your comments, I'm sure my readers are interested in seeing your opinion represented here.

Hello Rory,

I appreciate that it appears you have an open mind on this important subject of affordable housing.

Though this forum is limited by lack of space, I'll attempt to address your points/questions as best I can in the order you presented them:

1. Let's Get Our Terminology Straight.

Referring to a private property owner's right to reserve a future interest in his or her property as a "private tax" is a fundamental mis-characterization of transfer fees. Instead a transfer fee is an equitable future interest in the land, akin to the covenants that make a home owners association function, and easements that enable a present owner to reserve a right to sell the land but continue to cross it to gain access to the beach, or a conversion of title which enables a single person to add his or her new spouse to the deed as TBE, etc.

Proponents of SB 670 can mis-characterize the nature of the legal instrument but that doesn't make it so. The correct terminology is a "transfer fee" as in "a private property owner's right to reserve a transfer fee for the future use of his/her land".

2. Does the existence of a transfer fee represent more red flags, or more benefits?

I respect & admire the view you have of yourself as an advocate & advisor for your clients. Proponents of SB 670 seem to have ignored the mechanics of how a real estate transaction actually takes place however. . .

Specifically, in 99.9% of transactions the buyer will engage the services of a variety of professionals to help them understand the transaction and do their due diligence. Two one of the most important elements of that due diligence include a title search and taking the time to actually read the documents that are given to you for disclosure.

It's great that you want to help your clients evaluate all the pros & cons of a particular property. And if your client is considering, or has a contract pending on a property that is subject to a prior owner's reservation of rights, that should certainly be investigated and reflected in the offering price or terms.

And I think we can all agree that it is perfectly reasonable and appropriate to ask sellers a few simple questions before making an offer and renegotiating the terms of the deal if your title search later contradicts the facts upon which your original offer was based. Isn't that a better approach than seeking to deny people the right to a portion of their private property and rights to enter freely into private contracts?

3. The roof still has to be fixed, and the prior owner's rights still have to be respected.

In your third paragraph you make a statement, but I'm a bit confused as to the point you are making? Perhaps the constraints of this limited forum.

Take two almost identical properties. The prior owner of property A reserved a right to receive 1% of the sales price when the property sells in the future; Property B is not subject to such a condition. Of course I hope we can all agree that all things being equal property A will sell for a lower price. Right? And giving the buyer credit for being reasonably intelligent (or assuming at least that he or she has hired a decent Realtor)the lower price should be reflective of the future fee that will likely have to be paid.

Q. So who does that hurt?

A. If you will crunch the numbers, you will discover that mathematically both the buyer AND the seller come out ahead!


4. Communist Regimes

A society that respects private property rights, and the rights of its citizens to freely contract their rights and obligations must also recognize and respect the rights of an owner to do what he or she pleases with his or her property as long as it does not interfere with the rights of others.

Of course we have zoning laws to prevent one private property owner from exercising his or her rights in a way that interferes with the rights of other private property owners. But there is no privity of contract between those two property owners. A buyer who chooses to buy a property knowing that it is subject to a reservation of rights from a previous owner needs no such governmental protection. Instead he has a brain and free will to protect him.

Communist regimes deny their citizenry the right to use their brains or the free will to enter into private contracts. SB 670 would similarly seek to deny two private citizens the right to enter into a private contract concerning private property on mutually agreeable terms that do not harm anyone else.

I can say that duck is a cow, but at the end of the day if it has webbed feet and swims in the water it's still a duck. SB 670 is an attempt by a government official to substitute your right to make your own decisions with his own ideas of what's best for you, and so the reference to Communist Regimes.

5. You have not seen any of the benefits for any of your clients.

OK, let's take a typical example & keep the numbers easy to demonstrate the types of transactions we're seeing elsewhere around the country where buyers and sellers are benefiting.

Subject property is 1,000 SF built on the same set of plans as other comparables in similar condition on the same street, same age, etc. etc.

Comps are going for $100,000.

Buyer offers $90,000 and Seller rejects the offer. Buyer offers $95,000 and agrees to accept the property with a covenant from the seller which entitles her to receive 1% of the gross transfer fee every time the property sells again for the next hundred years. They make a deal.

Now let's inventory how EVERYONE WINS:

SELLER WINS because she sold her property in less time, and will be able to participate in its future appreciation owing in part to some of the improvements she made while she owned it.

BUYER WINS because he gets to postpone paying for a portion of the property until he goes to sell it. That means lower down payment, lower closing costs, lower mortgage payments and lower taxes. In other words the home became more affordable to acquire and to own. The Buyer also wins because it will be EASIER to sell the property down the road.

NEXT BUYER WINS TOO because giving her credit for her intelligence, she too will negotiates a lower price for the property in part, due to the fact that she knows she will have to pay for a portion of its value when she is ready to sell it. Again, this Next Buyer has found a more affordable home with a lower cost of acquisition and lower carrying costs the whole time she owns it.

If you crunch the numbers, what you discover is that the Seller ends up getting a fair return on the discount she gave to the first Buyer. If the first Buyer holds the property for more than a few years, he ends up saving enough on acquisition & carrying costs to more than pay for the portion of the property he must pay for when he goes to sell it. Same goes for all subsequent Buyers too. . . if you give them each credit for being able to use their brains.

And oh by the way, the Realtor also wins more often than not with listings that spend less time on the market because they're more affordable than surrounding comps. And especially in a down market like we're in right now, when you have a way to ease the pain a bit for your sellers by showing them how to offer a more affordable product for the buyer and still come out ahead most of the time.

Rory, I hope you can appreciate that I have invested quite a bit of time to respond to your questions. I trust you will consider the points I have made with a fresh perspective and re-think your use of the term "travesty" when referring to transfer rights. And when you do, I would invite you to share this blog posting with others of your fellow Realtors so that they may write a note to your C.A.R. and let them know that when used responsibly, transfer fee rights are in fact good for consumers and good for Realtors.

Respectfully,

RJON ROBINS

To see why Private Transfer Taxes are wrong simply visit www.freeholdlicensing.com .

I went there but all I see is why they're great. My grandchildren will thank me for this. Thanks for the lead!