The Boston Globe article about the transfer fee, last week, was pretty confusing. I think the R–®s like it that way. I wrote about similar transfer fee proposals just three weeks ago. Since then, I gave testimony to a committee at the State House in support of a transfer fee. Last week, a transfer fee was included in a legislative package proposed by Governor Healey.

Tucked in the Healey administration’s bold housing bond bill is a proposal to allow communities to adopt a real estate transaction fee of 0.5 percent to 2 percent on the portion of a property sale over $1 million. The money would go toward affordable housing programs. The administration is trumpeting the measure as affecting “fewer than 14 percent of all residential sales.” [source: The Boston Globe]

Repeating what I explained before, the various proposals for a transfer fee all have conditions on them. The state-wide ones (H.1377 and S.868), run parallel to what the Governor proposed:

  • 0.5 percent to 2 percent on the portion of a property sale over $1 million
  • Each town or city can opt into this fee, or not.

This transfer fee is not proposed to be put in place, statewide. It is an allowance for towns and cities to choose to develop a transfer fee within these limits. They may not collect a higher percentage or start at a lower starting point. They can create exceptions to the fee. Some towns are proposing to exempt owner-occupied housing or first-time buyers, for example. Once the Commonwealth passes legislation to enable this fee, towns and cities can make those decisions.

The transfer fee, by the numbers:

What would this fee look like for our typical seller?

  • Suppose that someone bought a house twenty years ago. They paid $400,000, with $80,000 down. They never borrowed against the equity in the house. They still owe $150,000 on their mortgage. The house is now worth $1,200,000. Before other fees, their gain is $970,000.

With the transfer fee, they will owe (at most) 2% of $200,000. That’s $4000 less in their pocket at closing.

  • Suppose that someone bought a house ten years ago. They paid $550,000, $110,000 down. They never borrowed against the equity in the house. They still owe $330,000 on their mortgage. The house is now worth $1,200,000. Before other fees, their gain is $760,000.

With the transfer fee, they will owe (at most) 2% of $200,000. That’s $4000 less in their pocket at closing.

  • Suppose that someone bought a house twenty years ago. They paid $400,000, $80,000 down. They borrowed against the equity in the house to put two children through college. They owe $500,000 on their mortgage. The house is now worth $1,200,000. Before other fees, their gain is $620,000, plus two children through school without student loans.

With the transfer fee, they will owe (at most) 2% of $200,000. That’s $4000 less in their pocket at closing.

These examples are based on a 3-bedroom house in a local community. Down payments are 20 percent. Down payments and remaining mortgage balances are subtracted to net proceeds of the sale. Other transfer fees, municipal fees, and broker fees are not calculated. 

We are in a housing crisis. Why is this relatively small fee getting so much pushback?

Who loses if there is a fee?

People who are in the business of selling multiple properties over $1,000,000 every year. They will have a slightly leaner bottom line.

Who does the article think will lose?

The article explains accurately, that median property prices are over $1,000,000 in a number of towns in the Commonwealth. Frankly, that is part of the problem. It is why so many people are having a hard time finding reasonable housing here.

It mentions that, in the future, maybe 30 percent of all properties would cost more than $1,000,000. That a problem, too, for people who are not earning enough to afford those prices. It’s a problem that could be mitigated by having funds for affordable housing. 

But…

Suppose 30 percent of properties sell for over $1,000,000. An additional $2000 per $100,000 — over the $1,000,000 mark — may come to $4-6,000 in fees. Even if sellers passed all of that $6000 fee to a buyer, the additional cost to the buyer in a monthly mortgage would be $28 per month (at 4 percent interest).

Bottom line? I don’t see the typical homeowner struggling to buy or sell a home. I do see an enormous need to do something significant to get ahead of the unbalanced supply and demand in our housing market. The inflation in housing cost over the past 20 years is putting decent housing out of reach of too many people.