A relatively unheard of, seemingly simple real estate fee has been stirring up strong opinions, significant funding, and local opposition that has made waves all the way to the federal government. The fee, called a private transfer fee, has been simultaneously growing in some areas while being banned or restricted in others. With the upcoming Coldstream housing project in Truckee, the effect of these growing regulations may be tangibly felt by potential homebuyers.
The Fees Take Root in Tahoe
If someone sells a home in Martis Camp, for example, added to the cost of the home is a 1 percent fee, paid for by the buyer, that would then be channeled through nonprofits for environmental purposes. If the home were to be resold, the fee would be collected again, and so on for future buyers.
These fees are tied to a handful of housing developments in Martis Valley, and have created tens of millions of dollars in funding for local nonprofits. But realtors, the most vocal opponent of the fees, have taken a stance against their usage. They see the fees as being inadequately regulated as well as impeding a property’s marketability as it raises the price of a home, among many other issues.
Though specifics vary among the contracts, the fees are established in a voluntary agreement between the developers and a nonprofit or other entity. Buyers pay on average 1 percent of the price of the home, with some contracts having a specified end date, while others go into perpetuity.
“They serve to ensure future sustainability on valuable Tahoe lands and are crucial to our community needs,” said Stefanie Olivieri, a board member of Mountain Area Preservation, a nonprofit that receives funding through transfer fees.
Transfer fees were first seen in 2003 with the development of Gray’s Crossing, then Martis Camp in 2006, which was the most well known case, and several more. Local nonprofits embraced the chance to create revenue, but the realty industry saw it as the start of a disconcerting trend that needed to be carefully watched.
Tahoe Donner Land Trust Executive Director Perry Norris said his organization has received $7.8 million through transfer fees, which has gone toward projects such as the conservation of 1,462-acre Waddle Ranch. The Tahoe Mountain Resorts Foundation recently reported providing more than $7 million to local organizations from transfer fees since 2003, including contributing to 63 stream restoration projects. The Martis Fund, a nonprofit set up to receive transfer fees from sales at Martis Camp, has received $8.5 million since 2006 and distributes the funds to conserve open space, restore habitat, and create workforce housing, according to the Martis Fund Community Benefit Report.
Powerful Opposition
As transfer fees grew in Truckee, opponents took issue with various aspects of the process.
“Our biggest concern is in regards to the oversight of the money, and a lack of transparency as to what happens to the money when it is collected,” said Peter Morris, a realtor for Sheridan Properties in Northstar.
[pagebreak]
The fees sometimes come into existence when there is disagreement between project proponents and environmental groups. The fees are known to ease the objections of the environmental groups, allowing the project to move forward. But the realtors see this as lacking oversight of what they see as a “tax” that burdens buyers but is outside government regulation.
“We would rather see a back-and-forth over the disputes in an open forum between the conflicting interests than the backroom deals that define transfer taxes,” said John Falk, a legislative advocate for the Tahoe Sierra Board of Realtors.
Opposition has been expressed by the TSBOR, the California Association of Realtors, and the National Association of Realtors, which have collectively opposed these fees since their inception in the early 2000s. The state association was considering sponsoring legislation for an outright ban of transfer fees in California in 2012, but has not picked up the effort since, citing a lack of support.
The Tahoe Sierra Board of Realtors believes transfer fees, also called transfer taxes, can even decrease the ability to create affordable housing in the area, which is a stated goal of transfer fees collected by the Martis Fund.
“If transfer taxes go to conserving potential developable land, the overall zoning is reduced and this creates more scarcity, which can raise property values,” Falk said.
Opponents also point to egregious cases in Texas and Florida where transfer fees were abused by developers and the fees essentially went back into their pockets instead of towards a common good. Falk notes he has not seen abuse in Tahoe, but finds these occurrences alarming.
“We can see that it is a great idea to develop funds that go toward benefitting the environment, but have seen them come into play in a rather sneaky and insidious way,” Morris said.
Those who work for the nonprofits that receive transfer fees maintain they are committed to staying transparent.
“The settlement agreement that is written when transfer fees go into effect clearly outlines how and where the funds will be used,” said MAP Executive Director Alexis Ollar, noting that nonprofits are required by law to make their 990 forms, which itemize their funding streams, available to the public.
Potential Changes
Responding to the opposition, in 2008 legislation was passed in California stating that these fees must be disclosed to the buyer in an additional disclosure statement.
Then, in 2012, a rule was established by the Federal Housing Finance Agency that could impact how transfer fees are implemented in Tahoe. The ruling prohibits the federal entities of Fannie Mae and Freddie Mac in “dealing in mortgages on properties encumbered by certain private transfer covenants.”
[pagebreak]
The federal ruling could restrict buyers from securing mortgages through Fannie and Freddie on properties such as Coldstream, a proposed development of 345 houses near Donner State Memorial Park that was approved by the Truckee Town Council in September 2014. However, the rule also includes language that permits transfer fees in situations where the funds are applied to lands adjacent to the encumbered properties, making the impact of the ruling subject to much interpretation.
The rule does not retroactively affect transfer fees that were already in place and only applies to developments starting after July 2012, making Coldstream the current focus of the transfer fee debate. The project has a 1 percent transfer fee attached to it.
Documents from the Town of Truckee state that 86.5 percent of the transfer fees collected will go to the Coldstream Foundation, an entity set up to support environmental efforts in the area, and the remaining 13.5 percent will go to the town.
That the money is going to a local government raises alarms for the local realtor board, and it has written the FHFA to see if it will approve loans for the project. The TSBOR believes that this is not in line with the stated rules that the fees are required to go toward adjacent lands. The money will go toward the purposes of trails and transportation, according to documents from the Town of Truckee. The FHFA is expected to make a ruling sometime in 2015.
Tony Lashbrook, Truckee town manager, believes that the language of the ruling places Truckee, as a local government, outside the restrictions of the ruling, but the FHFA will ultimately make the decision.
Until recently, local housing projects with transfer fees were in the luxury home range, but the Coldstream Specific Plan is designed to be more affordable, making this development a first in this type of transfer fee.
“We want to make sure the consumer is protected and potential buyers know well in advance if their loans will be approved in this project,” said Falk of TSBOR.
Additionally, the expansion of the Village at Squaw Valley has a reported transfer fee attached to some of the developments in the proposal, according to Falk. However, the transfer fees won’t be disrupted by the FHFA ruling as there is a cap on home prices secured through the FHFA. Since the Village is a high-end real estate market, the price of homes or condos will exceed that cap.
A Great Tool for Tahoe?
DMB Pacific Ventures, the developers for Martis Camp, see the fees as a practical tool for the complex issues of Tahoe real estate.
“Conservation on a large scale is very expensive to do right and it needs to be done over a long period of time,” said Eneas Kane, managing director for DMB. “Typical tools such as developer fees are very tough to use for land issues on a big scale over a long horizon. Transfer fees are a great tool when thinking long term.”
[pagebreak]
At Sierra Watch, a nonprofit that receives transfer fees, Executive Director Tom Mooers believes they are a practical compromise for ensuring conservation.
“We feel these fees are a way to protect land in the valley,” he said. “The development on the west side of Highway 267 has helped pay for the protection of land on the east side of the highway.”
However, as the fee is tacked onto the sale of the home for initial and future buyers, realtors believe this trend will further price people out of the already high cost of homes in the Tahoe area. A commonly cited study by realtors is one from 2007 by the California Association of Realtors that found for every increase of $10,000 that is added to a home, another 200,000 potential buyers are unable to afford that home.
Since the fees have been shown to remove opposition from environmental groups surrounding development projects, some believe this is the bottom line that will keep the fees in place.
“Since it creates peace between the developer community and nonprofits, I don’t think they will go away,” Norris said.
Author
