What are Real Estate Closing Costs in Maryland?
By Alex Mikoulianitch on June 01, 2024
Understanding the intricacies of closing costs is fundamental to any real estate transaction in the Old Line State.
Though they may not be the most pleasant topic for either buyers or sellers, they are the final hurdle both parties will have to face before they can kick back and enjoy their respective spoils.
Getting through all the nuanced fees and taxes has always been a nuanced part of buying or selling a home, no matter what state you’re in, and Maryland is now different. But once you break down the essentials, they won’t seem so hard to handle.
Below, we give a closer look at what closing costs are in Maryland, who pays them, how to estimate them effectively, and, most importantly, how both buyers and sellers can potentially reduce their costs.
What are closing costs in Maryland?
Closing costs in Maryland are fees and expenses that both buyers and sellers encounter at the end of a real estate transaction. They can range from title insurance and appraisal fees to loan origination fees and legal expenses.
Other charges are specific to Maryland, such as unique transfer taxes. Depending on the county a property is located in, there might be additional charges or variations in tax rates. For example, Montgomery County raised their Recordation Tax Rates for homes priced over $600,000 as of October 1, 2023. Your dedicated real estate agent will be a priceless resource in helping you navigate any unfamiliar costs.
It’s also important to remember that certain closing costs, such as transfer taxes and recordation fees, may be shared between buyer and seller, while others are the sole responsibility of the specific party. Who pays what can sometimes be negotiated, but it’s always essential to consult your broker to get a feel for the market before you ask for specific concessions.
Who pays real estate closing costs in Maryland?
Traditionally, both buyers and sellers shoulder specific closing costs in Maryland. The onus generally falls on the buyer for costs related to their mortgage loan, like origination fees, credit report charges, and appraisal fees. On the other hand, sellers predominantly cover costs tied to the property's transfer, as well as agent commissions and title transfer fees.
However, the exact division isn't set in stone. In the heat of negotiations, a seller might agree to absorb some of the buyer's closing costs or vice versa. Such decisions often hinge on the property's demand, its time on the market, and the eagerness of both parties to close the deal.
Common buyer closing costs in Maryland
- Loan origination fees
- Mortgage points (if applicable)
- Title insurance premiums
- Appraisal fees
- Credit report charges
- Escrow deposit for property taxes and
- Homeowners insurance
Common seller closing costs in Maryland
- Real estate agent commissions=
- Transfer tax
- Property tax prorations
- Liens (if applicable)
- Settlement fees
- Repair costs (if negotiated post-inspection)
How to estimate closing costs
For buyers in Maryland, closing costs generally range between 2% to 5% of the property's purchase price. Thus, a $550,000 home would likely have closing costs ranging anywhere between $11,000 to $27,500. For buyers, the loan origination fee typically makes up the bulk of these costs and is often 1% of the loan amount.
Sellers, on the other hand, can expect to pay around between 6% to 10% of their property’s final sale price in closing costs. The most sizable portion is made up by the real estate commission, which is typically around 5-6% of the home's selling price in Maryland. Using the earlier example, a home selling at $550,000 would likely mean paying commission between $27,500 and $33,000. Keep in mind, however, that the commission can be negotiated and is one of the best ways for sellers to lower their closing costs.
It’s essential to remember that these numbers can vary depending on each unique transaction and the brokerage you select to work with.
How buyers can offset closing costs in Maryland
The most effective way for buyers to reduce closing costs is by utilizing commission rebates.
Second to the down payment, closing costs are the most expensive part of the real estate transaction for Maryland homebuyers. Getting cash back via a commission rebate can help relieve a huge financial burden.
Simply put, commission rebates are a portion of a buyer’s agent’s commission fee given back to the buyer after closing. Tech-enabled brokerages like Prevu Real Estate modernize their approach by investing in digital home buying tools and a team of expert salaried agents to help unlock rebates for buyers.
Prevu currently offers the largest rebate in Maryland, allowing aspiring homeowners to receive a significant rebate after they close. That rebate can replenish savings, offset closing costs, or help bolster a furniture budget when a buyer moves in.
How sellers can reduce closing costs in Maryland
The first thing sellers should focus on when attempting to reduce closing costs is negotiating the real estate commission.
As we pointed out earlier, the agent commission makes up most of a seller’s closing expenses. Chipping away at that number, even if it's a small amount, can still make a crucial difference in how much a seller will have to pay. Remember, regardless of what any brokerage tells you, you can always negotiate the commission. How much room for negotiation you’ll have will depend on each specific brokerage.
Another potential path to reduce seller closing costs is choosing to sell your home for-sale-by-owner (FSBO). Bypassing the services of a listing agent altogether means avoiding their commission completely, but this method comes with its own caveat.
You’ll have full responsibility over the sale of your home; this means no access to Multiple Listing Services (MLS), no help marketing your home, and no easy access to a qualified pool of buyers. This route isn’t for everyone, but it does come with the potential of avoiding one of the most expensive closing costs sellers will face.
Finally, consider negotiating with interested buyers to pay some of the seller closing costs. This method can be especially useful in a seller’s market when low inventory and high buyer demand can potentially give the seller an upper hand.
