Q&A: Do I really need a land survey?

Q. What is a location survey?

A. A location survey is a sketch or drawing that shows the boundaries of a particular property. Also, the survey typically includes the dimensions of the house, patio or any additions as well as the locations of fences and any easements or rights of way. Mortgage lenders generally require a survey before lending on a purchase transaction. However, if you are paying cash and not obtaining a loan, you can choose whether or not to obtain a survey. 

Q. Why should I want to obtain a location survey?

A. A location survey defines exactly what it is that you are buying. Just because the back yard has a fence, doesn’t mean that you own everything inside the fence (or that you might not own something outside it). Over the years we have seen many buyers surprised to find out that: 

  • they did not own the driveway, 
  • their house was over the property line, 
  • the neighbor’s fence was inside their yard, 
  • their fence was outside the property lines, 
  • half of what they thought was their back yard belonged to a neighbor,  
  • and countless other complicated scenarios.

Q. Doesn’t the legal description on the deed list the property being conveyed?

A. Yes, but legal descriptions are sometimes wrong. We have seen legal descriptions that have included public alleys and incorrect property dimensions. The survey helps as a check to make sure that the correct legal description is listed. When it is incorrect, a new description is prepared, with the help of the surveyor. 

Q. When do I get to look at a survey?

A. Federal Title & Escrow Company sends out the location survey to the buyers and the buyer’s agent as soon as it becomes available. This way you will have a chance to review it and you can address any issues and/or concerns prior to settlement. The closing attorney will also review the location survey with you again at the closing. 

Round-up of recent changes to DC metro area transfer, recordation taxes

As Todd mentioned in his blog post earlier this month, the biggest ticket item for closing costs for a real estate purchase in DC can be the transfer and recordation taxes collected by the DC government.

The same holds true for Maryland and Virginia transactions – with the added complication that in Maryland and Virginia, you can also pay a county transfer tax, and the rules and rates vary depending on your county. (See Todd’s post earlier this month about how complicated calculating these taxes can be in Montgomery County.)

I thought I’d sum up some recent changes to the rules on how these taxes are calculated in DC, Maryland, and Virginia for purchases and refinances.

Click beyond the jump to continue reading

Closing costs complicated in Montgomery County, Maryland

County transfer taxes plus state transfer & recordation taxes make Montgomery County a tricky place to buy real estate

Closing costs in Montgomery County, Maryland – both in terms of the required complex calculations and the high rates – may be the most unfriendly jurisdiction to home buyers and sellers compared to all other jurisdictions in the country.

Most homebuyers and sellers can very easily determine their closing costs for government transfer taxes by simply multiplying a base factor of say 1% or .5% against their contract purchase price. However, in Montgomery County, Maryland, a multitude of factors come into play when calculating this biggest chunk of closing costs.

At the time of closing on a Montgomery County, Maryland purchase transaction, the three different taxes imposed and generally split evenly between the buyer and the seller are:

  1. County Transfer Tax
  2. State Transfer Tax
  3. State Recordation Tax

As a guide, I have identified each tax below with the respective rates and associated variables. Or if you want to make it easy on yourself, I suggest using our Quick Quote which accounts for all these factors and variables with a few easy questions.

 

County transfer tax

This tax is imposed at 1% of the purchase price (or total consideration) and customarily split 50/50 between buyer and seller. Thus, typically, the buyer pays .5% and the seller pays .5%.

 

State transfer tax

This tax is imposed at .5% of the purchase price and customarily split 50/50 between buyer and seller. Thus, typically, the buyer pays .25% and the seller pays .25%. However, if the homebuyer is a Maryland first-time homebuyer, then the buyer is exempt from paying her portion but the seller still must pay the .25%.

 

State recordation tax

This tax is imposed at .69% on the first $500,000 of the purchase price plus an additional .1% on the amount of purchase price exceeding $500,000. This tax is also customarily split 50/50 between the buyer and the seller.

However, if the homebuyer will be occupying the property as a principal residence, then the first $50,000 of the purchase price is exempt from this tax, which means the tax is imposed at .069% on the first $450,000 of the purchase price.

Further, an additional .69% is imposed on the loan amount of $500,000 or less (in most cases a construction loan) to the extent it exceeds the purchase price or 1% on the loan amount over $500,000.00 to the extent it exceeds the purchase price.

Closing costs... explained: 3 tips for achieving best value

If homebuyers and refinancing homeowners want to achieve the very best value on closing costs, they should follow these three simple steps:

1. Shop mortgage terms

Since most mortgage lenders today all charge about the same in origination and ancillary charges (i.e., Processing Fees, Document Preparation Fees, Appraisal and Credit Report Costs, Tax Service Fees, Flood Certification Fees, etc.), it’s best to stay focused on the interest rate compared against loan term and payment of any discount points. For example, if you are in the hunt for a 30 year fixed rate without paying “Discount Points,” then compare the interest rate offered by several different lenders.

2. Shop title company settlement fees

While your real estate agent and/or mortgage lender may recommend or refer you to their preferred title company, the title company may not be providing you, the consumer, the best value since they are likely providing a financial benefit to the referral source (i.e., the real estate broker or mortgage company). This means that since the preferred title company is sharing some of its profits with the referral source, they are either charging you higher settlement fees or, at the very least, are unable to provide you lower settlement fees compared than customarily charged in the marketplace.

Thus, it is important that you shop for the best settlement fees among other locally established title companies. A simple Google search for will allow you to compare settlement fees among other local title companies. Be sure to make an apples-to-apples comparison since some title companies charge an all-inclusive flat fee while others itemize numerous charges such as: Settlement Fee, Title Search, Title Examination, Document Preparation/Processing, Notary Fees, Courier Fees, etc.

3. Shop title insurance rates

While nearly all jurisdictions regulate title insurance, which requires title insurance underwriters to file their respective rates, there is very little difference in title insurance premiums among various underwriters. However, while you are shopping for settlement fees with local title companies, check their title insurance rates and inquire as to whether you may be entitled to a “reissue rate” discount on the title insurance premiums to be paid at closing.

Typically, if your seller has owned the property for less than 10 years and possesses an owner’s title insurance policy, you should be entitled to either a partial or full reissue rate; depending on the amount of the existing coverage.

Agents can define 'settlement costs' in sales contract to protect clients

A closing at Federal Title last week resulted in a dispute between the buyer and seller over the definition of "settlement costs" that could have been avoided had the GCAAR Regional Sales Contract better defined the term.

I'll get to the language in just a moment real estate agents, but first let me tell you what the dispute was all about so your clients can avoid a similar situation at the settlement table.

In this case the seller had agreed to give the buyer a credit of $20,000 toward the buyer's settlement costs as per the GCAAR Addendum of Clauses paragraph #1. The contract provision read as follows:

"In addition to any other amount(s) the Seller has agreed to pay under other provisions of this Contract, the Seller shall credit the Buyer at the time of Settlement with the sum of $20,000 toward Purchaser’s settlement costs. It is the Buyer’s responsibility to confirm with his Lender, if applicable, that the entire credit provided for herein may be utilized. If Lender prohibits the Seller from payment of any portion of this credit, then said credit shall be reduced to the amount allowed by Lender."

Specifically, the 6-month Montgomery County, MD tax bill of $3,700 was itemized as a charge to the buyer on the HUD-1 Settlement Statement. This tax bill was required to be collected and paid at the time of closing as a requirement for recording the deed with the Montgomery County, MD clerk’s office. Further, this tax bill covered future taxes to the benefit of the buyer, covering the tax period of January 1-June 30, 2013.

In most cases, a lender will not allow any prepaid items (i.e., taxes, escrows, etc.) to be counted as settlement costs against the seller credit. However, in this case the lender allowed all settlement costs, including prepaid items, to be counted against the seller credit.

The seller argued that the $3,700 tax bill was not a "settlement cost" and thus, the credit should be reduced to $16,300. The buyer, on the other hand, argued that all items appearing on the HUD-1 Settlement Statement should be defined as "settlement costs" and that definition should include the prepaid taxes in this case since the payment of the taxes was a condition of closing – the taxes had to be collected by Federal Title and paid to Montgomery County, MD clerk’s office in order to record the deed.

Since "settlement costs" are not defined in the GCAAR Regional Sales Contract, the parties languished for a good length of time over the meaning and whether prepaid taxes should count against the seller credit.

How can real estate agents protect their homebuyers?

Agents would be well-advised in representing their client’s best interest to add their own definition of the term "settlement costs" to the GCAAR Regional Sales Contract. For example, if you are acting as a buyer agent where a seller credit exists, I would recommend adding an addendum or additional provision to the contract that reads:

"The parties understand and agree that "settlement costs," as the term is used throughout this entire contract of sale, shall mean all charges itemized and charged to the buyer on the HUD-1 Settlement Statement, including, but not limited to, prepaid and pro-rated taxes, escrow reserves, and prepaid interest, and as allowed by the buyer’s lender."
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Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.