'Gift' for Homebuyers that May Cost Too Much


The governor and the legislature wanted to give homebuyers a gift, but they didn't want to pay for it.

What to do? Get someone else to pay, of course.

The General Assembly has passed a law reducing closing costs for first-time buyers. Real estate agents, lenders, business leaders and homebuyers have complained for years about the state's settlement costs -- which are among the highest in the country.

Some are still complaining, because the state is not lowering taxes so much as shifting the cost of those taxes away from first-time buyers and onto sellers and move-up buyers, as well as onto lenders.

In addition, the centerpiece of the legislation -- allowing home owners to pay taxes semiannually, and reducing the amount of up-front taxes needed at settlement -- is already available in Baltimore City, and Baltimore County was expected to pass similar legislation.

"From a GBBR perspective, not a whole lot was done to benefit the homebuyers and sellers in our area," said Christine A. Vasiliou, executive vice president of the Greater Baltimore Board of Realtors.

"It was shifting the burden from the buyer to the seller."

In fact, after the bill goes into effect (the last provisions, concerning transfer taxes, would take effect Sept. 1), the state is expected to collect more than $2 million in additional tax revenue, according to the Assembly's Department of Fiscal Services. The tax cut for first-time buyers will be more than offset by a tax increase for move-up buyers.

In the first year, this extra money will be given to local jurisdictions to update computer systems to accommodate the semiannual payment system.

Ms. Vasiliou predicted that the legislation will have little impact on the market, adding that it will help first-timers at the expense ,, of sellers and move-up buyers. Move-up buyers -- who have already lowered prices, struggling to sell their homes in a dreary market -- would be squeezed even more.

But others, including Bill Castelli, a lobbyist for the Maryland Association of Realtors (MAR), says the state must do all it can to help first-time buyers -- whose purchases can start a chain reaction of other home sales among move-up buyers.

"The seller might be losing a few hundred dollars, but what they're gaining is more [potential] buyers and that might mean thousands of dollars on what they get for their homes," he said.

The key to the law

The key provision of the law allows homeowners to pay taxes semiannually, instead of all at once at the start of the fiscal year. On a typical $130,000 purchase in Baltimore County, this may save a buyer about $1,000.

And who pays for this?

Homeowners will have to pay a portion of it through a fee to local jurisdictions for the privilege of paying semiannually. And lenders will lose as borrowers will need less money in their escrow accounts -- which earn income for lenders.

Most agree that the semiannual payment option will be helpful, but the benefits of two other provisions are less clear. Some in the real estate industry say the state is merely playing shell games.

Almost certainly, the estimates of savings for first-time buyers are overly optimistic. Both the Assembly and the Realtors association predict first-timers will pay $2,000 less in closing costs with the new law.

But about half of the savings would come from a requirement for the seller to pay the buyer's local transfer and recordation taxes, unless the sales contract divides those taxes differently. It seems unlikely that many sellers will allow the matter to be settled by the state.

And even if the seller does pay these local taxes, homeowners may either refuse to sell to first-time buyers or add the extra closing costs into the price of the house, said Del. Victoria L. Schade, an Anne Arundel Republican who is an outspoken critic of the legislation.

Paying for the cut

The new law also exempts first-time buyers from paying the state's transfer tax -- saving a typical buyer $100 on the purchase of $100,000 home. But to pay for the tax cut, most other buyers will pay $150 more.

"People will realize a few years from now that they made a mistake," Delegate Schade said.

PD Daniel B. Wroblewski is real estate editor of The Baltimore Sun.

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