Up Pops the Real Price Tag

For some buyers, the D.C. recordation tax recently increased. On Oct. 1, 2006, for all home purchases of $400,000 or more, the tax rose from 1.1 percent of the residence's purchase price to 1.45 percent. For homes under the $400,000 limit, the fee remains at 1.1 percent.

In Maryland, there's a state transfer tax of 0.5 percent of a home's purchase price. (It's less if the buyers are first-timers.) On top of that, there's a county transfer tax that varies according to where the residence is. Then, depending on the county in which buyers are purchasing, they pay recordation fees that range from $2.20 for every $500 of a home's purchase price to $6 for every $500.

For a $300,000 home, recordation fees in the costliest county -- Frederick -- add up to $3,600. Again, it's customary for buyers to pay for recordation and sellers to pay for transfer, but that's negotiable.

In Virginia, the state charges a recordation tax of 25 cents for every $100 worth of a home's purchase price. Again, counties and cities may charge their own recordation taxes on top of this. The sellers usually pay what is called a grantor's tax, rather than a transfer tax. Taxes in general can be a mystery to first-time buyers, said Kevin McDuffie, a real estate agent with the Dupont Circle office of Coldwell Banker Residential Brokerage.

"The cost of buying a home here in D.C. can be a real shocker," he said. "The taxes and fees are just one more thing that adds to the costs. I consider it my job to be upfront with my buyers and let them know at the start that they'll be facing these fees."

Holly Worthington, an agent with the Chevy Chase office of Long & Foster, said real estate agents should educate buyers on the tax and closing-cost fees they face. This is especially important when buyers work with lenders that aren't local.

"Too many agents don't do a separate evaluation of the good-faith estimate that lenders give to buyers," Worthington said.

The good-faith estimate is an important tool for buyers. As its name suggests, it lists the estimated closing costs and settlement fees that buyers need to pay to receive their mortgage loan. Mortgage lenders are required to provide their customers with this estimate when the borrowers apply for their loan. If the lender or mortgage broker does not provide the good-faith estimate when borrowers apply, it must be mailed or delivered within the next three business days.

Buyers need to remember, though, that the good-faith estimate is only an estimate. Several of the closing costs listed on the estimate may be higher or lower at the settlement.

An official accounting of closing costs comes with the HUD-1 Settlement Statement. It lists the exact costs of the real estate transaction. Buyers are supposed to be allowed to study this form one day before settlement.

But because the good-faith estimate is not an exact listing of charges, Worthington advises her clients not to rely on it.

"Many times a lender will not be well-versed in how transfer taxes are charged in a particular area, for instance," Worthington said. "A Realtor in that area should know this. But if the agents aren't evaluating the good-faith estimate, they won't be able to find any possible mistakes. That's something that can lead to surprises at the closing table."