Who Pays Closing Costs in Maryland: Buyer vs. Seller

Closing costs are fees and expenses incurred by both buyers and sellers to finalize a real estate transaction, separate from the property’s purchase price. These costs are a standard part of transferring property ownership, covering services and taxes. Their allocation varies, influenced by local customs and state regulations. This article clarifies the typical distribution of these costs in Maryland.

Buyer’s Closing Costs in Maryland

Homebuyers in Maryland typically face closing costs ranging from 2% to 5% of the property’s purchase price. These expenses cover services necessary to secure a mortgage and transfer ownership. Loan origination fees, for processing the mortgage application, are a significant portion of these costs.

Additional expenses include appraisal fees ($300-$500), which support the loan’s value. Buyers also pay for credit report fees, inspection fees ($300-$500), and survey fees for property boundaries. Recording fees, typically around $20, are paid by the buyer to document the deed and mortgage.

Buyers are also responsible for title-related costs, including fees for a title search. Lender’s title insurance, which protects the mortgage lender from future title disputes, is customarily paid by the buyer. Buyers often establish escrow accounts for prepaid expenses like property taxes and homeowner’s insurance premiums to cover ongoing costs.

Seller’s Closing Costs in Maryland

Sellers in Maryland typically incur closing costs ranging from 6% to 10% of the home’s sale price, largely due to real estate commissions. These commissions, usually between 5% and 6% of the sale price, cover fees for both the listing and buyer’s agents. Sellers customarily pay this entire commission.

Another common expense for sellers is the owner’s title insurance policy, which protects the buyer from any title defects after the sale. While negotiable, sellers in Maryland traditionally cover this cost. If there is an outstanding mortgage, the remaining balance is paid off from the sale proceeds at closing.

Sellers are also responsible for prorated property taxes and homeowners association (HOA) fees up to the closing date. Title company fees, which can be around $900, are paid by the seller to facilitate the settlement process. Any agreed-upon credits or repairs negotiated with the buyer will be deducted from the seller’s proceeds.

Maryland-Specific Taxes and Fees

Maryland has specific taxes that are a significant part of closing costs, often shared. The state transfer tax is levied at a rate of 0.5% of the property’s sale price and is typically split equally between the buyer and seller.

However, for first-time Maryland homebuyers purchasing a principal residence, the state transfer tax rate is reduced to 0.25%, with the seller usually responsible for paying the entire 0.25%. Most counties also impose a local transfer tax, which can range from 0.5% to 1.5% and is generally shared.

The recordation tax is another notable fee in Maryland, varying by county. This tax is typically calculated per $500 of the consideration or debt secured, such as $4.10 per $500 in some jurisdictions, and is customarily split evenly between the buyer and seller. A recording surcharge of $40 is also applied to most instruments recorded in the land records.

Strategies for Negotiating Closing Costs

Negotiating closing costs is a common practice in Maryland real estate transactions, offering flexibility beyond typical allocations. Buyers can request seller concessions, where the seller covers a portion of the buyer’s closing costs or specific expenses. This can be particularly effective in a buyer’s market where sellers may be more motivated to offer incentives.

Seller concessions can involve the seller paying a flat percentage of buyer’s closing costs or directly covering items like appraisal or inspection fees. Specific loan types have limitations on the amount of seller concessions allowed; for instance, conventional loans may limit contributions to 3% for down payments under 10%. These agreements are formally included in the purchase agreement.

Sellers also have opportunities to manage their own closing expenses, particularly real estate commissions, which represent a substantial cost. Sellers can negotiate the commission rate with their agents or explore alternative listing services that offer reduced fees. Buyers can compare quotes from different service providers, such as title insurance companies, to lower their associated costs.