Assembly Lets Closing Costs Rise Out Of Reach

AS I SEE IT

Action Puts Md. Home Buyers At A Disadvantage

April 07, 1991|By Sharon Hornberger

As I see it, the Maryland General Assembly has let Maryland home buyers down again.

In a move that is almost an annual legislative ritual, the General Assembly has again rejected legislation that would have meant a significant reduction in closing costs for state home buyers.

After several years of legislative efforts, the best the assemblyhas been able to do in reducing the state's exorbitant closing costsfor home buyers is to cut those costs by a mere $150.

Reducing the costs by $150 took the assembly four years. In 1987, a bill to exempt buyers from the state's one-half of a percent transfer tax on the first $20,000 of the purchase price of a home was approved. In 1988, the exemption was increased to the first $25,000 of the purchase price.

In 1989, the exemption was increased to the first $30,000 of the purchase price, bringing the total savings of the home buyer to $150. However, the $150 could be split between the seller and the buyer,leaving the buyer with a possible savings of $75. But last year, theassembly enacted legislation that required the entire $150 go to thebuyer.

A survey conducted by the Greater Baltimore Board of Realtors revealed that Maryland's settlement costs were among the highest in the nation. On a $100,000 home, average Maryland closing costs worked out to $6,707.

Between 1979 and 1989, home ownership in the state dropped slightly, particularly among young adults.

It should be noted that the 10 years surveyed were before the brunt of the real estate decline.

From 1979 to 1989, according to the U.S. Department of Housing and Urban Development, home ownership in Maryland dropped from 68 percent to 61 percent for the general population and from 43 percent to 36 percent among people ages 25 to 29.

A savings of $150 scarcely constitutes a significant amount when the average home in Maryland sold for $139,643 in 1990. In Carroll, the average home sold for $136,112 in 1990.

The current session of the assembly has killed the only promise of substantial closing-cost relief offered home buyers in several years. The bill, introduced in both the Senate and the House, would have given buyers the option of paying the next full year's property tax on a semiannual basis.

The measure appliedstrictly and only to home buyers. It did not apply to the 1 million homeowners in the state, but only to the 50,000 to 60,000 people who buy homes each year in the state.

In most Maryland counties, the property tax accounts for about 25 percent of the settlement costs. InBaltimore city, it accounts for 40 percent of the closing costs.

Enactment of the bills would have resulted in a savings at settlementof three to six months' worth of property taxes for the purchaser.

To counter regional government's claim that passage of the semiannual property tax would result in lost interest for the counties, the bill provided for a charge to be included with the second semiannual payment to allow the governments to recover administrative costs and lost interest.

It was hoped that this move, and restricting the semiannual property tax solely to home buyers, would appease regional governments' opposition. But governments still opposed the bill throughthe Maryland Association of Counties.

It should be noted that Frederick County has given its citizens the option to pay their taxes ona semiannual basis for years and has not experienced any problems.

In fact, 50 percent of the states offer the opportunity for paymentof property taxes either semiannually or quarterly, and 95 percent collect taxes in arrears, or at the end of the tax year.

That meansthat on a home sale, the seller pays the buyer. In Maryland, property taxes are paid in advance at the beginning of the tax year, which results in the necessity of the buyer reimbursing the seller at settlement.

The repeated failure of the General Assembly to enact significant closing cost relief is the bottom line in myopia. It retards economic growth because businesses looking to relocate in our state always check the cost of housing.

Encouraging home ownership goes hand in hand with encouraging economic growth.

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