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The Impact of Taxes on Closing Costs

home pricesSingle-family property closing costs were $5,779 including taxes, and $3,344 excluding taxes in 2018, according to the recently released ClosingCorp closing costs data. Using home price data from CoreLogic, ClosingCorp created a $100,000 price range to analyze real transactions.

“The average home price is a number, but not necessarily a real property with a real closing,” said Dori Daganhardt, SVP of Data Strategy, ClosingCorp. “To get a sense of what is really going on in the market, we compared real cost data on more than 1.5 million purchase transactions that went through our SmartFees platform in 2018. We also used ‘market-specific’ rates and fees charged by the most active settlement services providers in each geographic area, not just network averages.”

According to the 2018 report, the states with the highest average closing costs, including taxes, were: District of Columbia ($24,613), New York ($13,581), Delaware ($13,309), Washington ($12,667) and Maryland ($11,395). The states with the lowest closing costs, including taxes, were: Missouri ($1,887), Indiana ($2,002), South Dakota ($2,149), Iowa ($2,248) and Nebraska ($2,267).

Despite the rise in home prices and closing costs nationally, many potential homebuyers are still feeling optimistic about buying a home. Fannie Mae's Home Purchase Sentiment Index (HPSI) increased 3.7 points to 92 in May, just missing the survey high set in May 2018.

The biggest reported increase was 13% in the “Good Time to Buy” component, as 27% of those surveyed felt it is a good time to buy a home. Fannie Mae states that most responders expecting home prices to go up and mortgage rates to continue falling over the next year year grew by 5% and 3%, respectively.

However, many of the states with the highest closing costs identified by ClosingCorp have been hampered by low affordability. According to Trulia, only 9.3% of ZIP codes in New York, New York had homes all could deem affordable. New York city holds some of the highest closing costs in the country, and Bob Jennings, CEO of ClosingCorp, notes that continuous increases and adjustments to taxing policies may impact these costs.

"For example, four New York counties let their local mortgage tax expire and then reinstated the same tax; and the city of Baltimore introduced a ‘yield tax,’ which is essentially a ‘tax on tax,'" Jennings said. "We expect to see even more adjustments in 2019, including a new law which increases the mansion tax on a sliding scale for transfers where the consideration is in excess of $2 million in New York City—already one of the cities with the highest closing costs.”

 

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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