What is a development fee?
In practice, the term "development fee" can have two different meanings involving real estate. The term "development fee" is often used interchangeably with "developer fee" which can lead to confusion.
The development fee may refer to a tax to a local municipality. Completely unrelated, the development fee may also refer to a charge by commercial real estate developers for their services in developing real estate. The trick to distinguish its meaning is to know the context.
Development Fee as a Fee to the Developer - Developer Fee
A "Development Fee" can refer to a charge for development management services. Commercial real estate developers can develop commercial properties as a service for a principal. The principal can either be a land owner or real estate investor. The real estate developer charges a fee for their services, typically as a percentage of the development cost. This fee is referred to as a developer fee, and loosely as a "development fee."
Development Fee As A Tax - Development Impact Fee
Local governments may tax real estate developments directly. This is a "developer impact fee" charged by a local municipality on a real estate development project. The tax to the local municipality is either referred to as an "impact fee," "development fee," or "developer fee."