Closing costs are intrinsic to the transaction process of real estate. These costs, however, vary from property to property, state to state and city to city. As usual, I invoke the TINSTAANREM axiom — There Is No Such Thing As A National Real Estate Market (or a National Economy). The same is true regarding transaction costs. When analyzing transaction costs, the ultimate focus should be on what the total costs are to the buyer and seller.
To estimate the incidence and level of closing costs for buyers, ClosingCorp analyzed the closing fees for 1.5 million conventional purchase transactions of single family properties from January 1 through December 31, 2018. Analysis was completed using a $100,000 price range on home sales. ClosingCorp “used ‘market-specific’ rates and fees charged by the most active settlement services providers in each geographic area, not just network averages.” The specific fees and costs included:
- Title policies – including owner and lender coverages
- Settlement fees
- Recording fees
- Land surveys
- Transfer taxes
The following table lists the 10 states that had the greatest average closing costs on a dollar basis. It is followed by the 10-lowest cost states. Average closing costs for the typical home in the District of Columbia at $24,613 were 13 times that of the lowest cost of $1,887 in Missouri. Transfer taxes in the District of Columbia averaged $18,919.
The next two tables show the same ranks but with costs expressed as a percentage of the home price. Pennsylvania topped the list with the greatest closing costs as a percentage of home price at 4.95 percent. The least was Colorado at 0.88 percent.
The typical mortgage closing cost across the country was $5,779 (including transfer taxes) and $3,344 (excluding taxes). Details for all 50-states and the District of Columbia are shown in the following table.
Transfer or transaction taxes were present in 38 of the 50 and District of Columbia. The average transfer-transaction tax was $2,512 and ranged from a low of $74 in Colorado to a high of $18,919 in the District of Columbia. The following table lists the average for states having transfer or transaction taxes.
To download and read the entire ClosingCorp study click https://www.closing.com/wp-content/uploads/2019/06/CC_2019ClosingCostsPR_FINAL_061119.pdf
No doubt transfer taxes in some states limit home sales and ultimately homeownership rates. Note that these costs do not include seller-side charges such as real estate brokerage fees nor buyer-prepaid items such as property taxes and insurance.