Runaway Development Fees

    Greasing the palms of government

    I recently had a buyer on one of my land listings cancel the deal. And while that’s never an ideal situation, in this case it was easy to understand.

    He was in escrow in a 1/4 acre lot in an exclusive El Dorado Hills subdivision. After a couple of days of gathering information on permitting and fees, he called to let me know he could not continue in the face of what were currently just a bit over $40,000 in fees to build his 2500 square foot home on a 1/4 acre lot.

    I told him I understood and sympathized with him. Then we put the lot in escrow with the back up buyer at the same price. But it got me thinking…

    The “developer” pays the fees… wait… No.  They sell the finished home so the Buyer ultimately pays the fees. Yes.  So that would mean that the price of the home would necessarily be higher due to the fees by about the same amount as the fees.  Or maybe the price has to be raised by a bit more than the fees due to the increased financial risk caused by the larger initial capital outlay.  That has to be axiomatic – the home would be cheaper if the cost to build it were less.

    Here’s where it gets really good…

    The taxes and fees to the new homeowner are largely calculated on the price of the home. So the different layers of government levy exorbitant fees causing the price to inflate. Then they collect larger taxes and fees from the homeowner based upon the inflated price of the home.

    I’m in the wrong business!

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