What really drives high closing costs? (Hint: It’s not home prices)

The tallies are in, and the District of Columbia officially ranks No. 1 for the highest average closing costs in the nation, according to a report on closing costs that ran last month in the Washington Post.

Open Closing Cost Comparison Chart

Not exactly something for DC homebuyers to celebrate. Maryland didn’t fare much better at No. 4, while Virginia came in toward the middle of the pack at No. 16.

Bear in mind these are closing cost averages in DC, MD and VA, and closing costs increase as the price of the property increases. But price increases are not the only driver of high closing costs.

Homebuyers are paying high closing costs because of the proliferation of broker affiliations with title companies and joint venture operations between brokers and title companies.

When title companies pay money in exchange for client referrals, which is the crux of these arrangements, they pass those costs along to the homebuyer and seller in the form of higher title fees. This is one reason why choosing an independent title company matters.

Washington Post was reporting on a closing cost analysis by Core Logic. Here’s the findings of their analysis for DC, Maryland and Virginia. See the cost difference between the average title company and the independent Federal Title.

As an independent title company that is adamantly pro-consumer, we routinely decline pay-to-play partnership opportunities.

We caution homebuyers and sellers about these arrangements and have encouraged them to shop title service providers for over 25 years. Core Logic’s analysis highlights exactly how much homebuyers in particular stand to lose, anywhere from $750 to over $1,600 that could be put to better use.

If you’re a homebuyer who cares about how your hard-earned money gets spent, when you interview real estate agents to help you buy a house, ask them to compare their preferred title company’s fees with Federal Title’s fees.