California Buyers Beware: New Development Home Builders May Be Ripping You Off

As a buyer of a new built home in California’s Inland Empire, would you be willing to pay the builder a 1% fee when you sell the home 3, 7, or even 15 years from now?  That is exactly what home builders have done, are doing, and trying to do more often.

It’s called a ‘private resale’ fee or ‘flip tax’.  The builder often gets 1% of the sales price each time the home is sold….oftentimes up to 99 years!  The real kicker is that the 1% fee doesn’t go to making any improvements or an HOA fees which is more common in condo developments. Think Big Work Small, in one of their recent shows called this a Real Estate Scam (watch the video).

How much money can builders make from this type of deal? Lets say the builder sweet talks you into buying a new home for $250,000 with a $15,000 incentive and the contract states they will take 1% of the homes sales price (from your equity) upon the sale of the home over the next 99 years.  Lets say the home is sold every 10 years, (Avg is actually closer to 7 years).  So the home is purchased 9.9 times over that 99 year period for $250,000.  The builder makes $2,500!  (we’re assuming it never once appreciates in value).  The results in the home builder make an extra $24,750 over the 99 year period!  Lets say they build 4,000 homes in just one year with this sweetheart 1% ‘flip tax’ resale fee in the contract, and each home is priced at $250,000.  Drum roll please……that results in an extra $99 million dollars in revenue for the builder!!!!  And that’s just from 4,000 homes built with this 1% resale fee tax!  Seriously, we are all in the wrong business. reported this story and Kathleen Day from the Center of Responsible Lending said, “It’s of no benefit to consumers, it’s another innovative way to price gouge. Every extra dollar they suck out of people’s wallets takes away from other spending. It’s not good for the economy.”

Actually, I’m surprised our state or federal government didn’t pass some additional law similar to this to generate more tax revenue.

How do they justify it? I don’t know.  New built homes never sell at a discount, and the costs to move into a new home are often more than an existing home.  You aren’t buying a home that is under market value….in fact, they are often higher priced then many comparables due to builders padding the sales price to recoup the ‘incentives’ they entice you with.

If you insist on buying a new built home, you need to protect yourself and make sure you are represented by a fully licensed CA DRE Realtor buyers agent. You need someone who can understand and decipher the 100 page sales contract and fine print disclosures they throw at you.  If you want a referral of an experienced agent in Temecula, Murrieta, Menifee, Canyon Lake, Lake Elsinore, Corona, Norco, Ontario, Riverside, Moreno Valley, Chino, Rancho Cucamonga, Fontana, San Bernardino or anywhere else in the Inland Empire, feel free to call or email me.  I work with the best.

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