Government gets blamed for high Md. closing costs


September 11, 1994|By Patricia Horn

Maryland's home settlement costs are already among the highest in the country. A 1988 survey done for the National Association of Realtors showed that Maryland's transfer and property taxes rank behind only Pennsylvania, Delaware and New York.

Why are Maryland's closing costs so high? And, what, if anything, can be done to bring them down?

Michael Gisriel

Senior Vice President,

Fountainhead Title Group

of Columbia

Maryland is among the top five or six states in the country on closing costs. It is real easy to understand why when you study the question.

Closing costs fall into two separate areas: private fees and government fees. Maryland's private fees -- bank fees, Realtors' fees, attorneys' fees, title insurance fees -- are 22nd or 24th in the country.

But on government-imposed charges -- transfer tax, documentary stamps, recording charges and property taxes paid in advance -- Maryland is No. 1.

Maryland is one of only a half-dozen states that makes the buyer pre-pay a year's real estate taxes. That is a major dollar item at settlement.

Subdivisions can now elect to be paid on a semi-annual basis. Unfortunately, only two subdivisions -- Harford County and Baltimore City -- have enacted that program. The state should mandate that real estate taxes be paid semi-annually, reducing the amount of cash needed at settlement by $1,000 to $1,500.

And we need to diminish closing costs or give a credit to residential homebuyers against both the state and local transfer taxes. We have seen that the average Marylander can afford the monthly payment on a house, but can't save the cash to pay settlement costs and the down payment.

Arthur Davis III


Maryland Association of Realtors

It is hard for the first-time buyer to get into the Maryland housing market. They have to accumulate more cash than in other states before they make a purchase.

It is harder, too, when homes are not appreciating much. A person won't trade up, because such a big chunk of the equity will be eaten up by the sale and purchase costs. The average cost when trading one house for another -- the sales costs, including the broker's commission -- run anywhere from 7.5 percent to 8.25 percent. The costs at settlement to buy a house run around 6.5 percent. Those are substantial costs.

If you sold the house for $100,000, you would spend $7,000 to sell, and if you bought a $150,000 house, that would cost $10,000 in closing costs. That is $17,000 in transaction costs alone to move. Unless you have big equity in the first house, you are not as likely to sell. That slows the market down because it is expensive to make that trade.

Charles W. McGuire

General Counsel,

Maryland National Mortgage


The excessive costs primarily stem from two items: the first is government charges associated with the recording of mortgages and deeds. Those charges -- documentary stamps and transfer taxes -- go partly to the county and the rest goes to the state. Those charges are generally higher than in other places.

Another item is the escrowing of real estate taxes. Unlike other states that have real estate taxes due quarterly or semi-annually, Maryland requires the payment on an annual basis.

The other piece -- the closing costs with lenders or title companies -- are generally similar to other states and jurisdictions.

Obviously, any time you lower closing costs, you will expand your client base, whether you are a lender or a Realtor. Other than reducing the government charges -- which is unlikely -- the only other item is the escrows. If you were to pay taxes quarterly, the most that would be escrowed would be three months of taxes instead of 12 months. That additional nine months is a significant chunk of change. The dilemma is whether the jurisdiction can afford to do that on a quarterly basis, because obviously the overhead would be higher.

The only other avenue would be to reduce taxes. Would I like to see that happen? Yes. Will it happen? Don't know. Maryland is one of the top states with regards to taxes in the country; all of us would like to see taxes reduced. Whether that would occur, well, that needs to continue to be addressed, and unfortunately it is an issue reserved for the legislature.

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