The headline describes a couple words consumers usually tend to disfavor – Wall Street and Fees. So these items combined likely would scare the pants off a homeowner, right? Well that’s what I think will happen if the so-called Wall Street Resale Fee makes its way to Wisconsin. Here’s the deal, a resale fee (also called a private transfer fee covenant) works like this:

The headline describes a couple words consumers usually tend to disfavor – Wall Street and Fees. So these items combined likely would scare the pants off a homeowner, right? Well that's what I think will happen if the so-called Wall Street Resale Fees make their way to Wisconsin. Here's the deal, a resale fee (also called a private transfer fee covenant) works like this:

A developer purchases a large parcel of land and divides it into 100 residential lots. Before selling any of the lots, the developer records a "covenant" against the title to the land. The covenant requires that for the next 99 years, each time the home is sold the seller shall pay 1% of the purchase price to the developer. Suppose that the average homes built on these lots is $400,000 and that the subdivision is fully built out. Within the first 5 years, experts will say that each home in the subdivision will be resold at least once. And with each sale a 1% fee is paid to the developer. That's 100 homes times $400,000 for a total of $40,000,000, with the 1% fee of $400,000 being paid to the developer in the first five years. And it doesn't stop there; it repeats itself each time a home sells. Over the 99 years, the developer could make over $20,000,000 in fees for that one single subdivision. Now let's suppose this developer develops thousands of lots/homes per year. These fees can generate billions. The company spearheading the whole thing has announced $500-billion in projects in several states (Wisconsin not yet included). Once the projects are complete, like many investment opportunities, the company takes its idea to Wall Street where it is packaged as a security for investors. And that's how the term Wall Street Resale Fees came to be.

So what's the good side of the story? The company setting up these covenants says they offer developers "a financing tool" to make home building more affordable by collecting money over time and not just on the first sell off of the lot and home. This causes the developer to be able to offer a lower price to consumers, which could arguably help real estate rebound.

Are you buying this idea? 15 states have already banned Wall Street Resale Fees. Wisconsin is not one of them, although this author has yet to see one of these projects in Wisconsin. If you hear of one in your neck of the woods, let me know. In the meantime, the fine folks at the American Land Title Association are working with consumer groups and governors across the country to proactively ban these fees before they show up in your market.