Does your builder's contract include a "flip tax"?
The slow economy is making it hard for builders to obtain financing but many builders have changed their contract so that they can receive cash from investors now. A flip tax is added to the contract...every time the owners of the home sell the house, a percentage, usually 1%, will be paid back to the builder. This is not a new tactic. Condominiums have used this but have put the money back into common area projects or into home owners association reserves. Lennar has also used a similar technique but they donate the money to local housing programs and charities. Some builders are putting this money straight in their pockets and this is aggravating to the public and real estate experts.
Real estate experts say that this technique will only put more downward pressure on prices.
Builders argue that this allows them to finish subdivisions that they would otherwise have to pull out of because they lacked the funds to continue.
The builder would have two options:
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They can build now and wait to receive their "tax" when today's buyers decide to sell the house
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The can sell the futures to investors at an amount around 5% of the original sales price of the house
18 states have already banned this technique and experts predict that more will in the future. I have not come across this when selling new construction in Charlotte, NC.
