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A transfer tax, also known as a deed transfer tax, is imposed by states, counties and/or municipalities when real estate is transferred from one owner to another; one analogy refers to this as the real estate “sales tax.” Some states also levy the tax when a mortgage is refinanced.
A transfer tax is assessed in 37 states and in theDistrict of Columbia, and it can vary widely. The actual tax varies by jurisdiction and can either be a flat fee, or can be assessed as a percentage of the property value.
The tax rate can be as low as a flat fee of $2 inArizona, to 2% of the property value inDelaware.
If levied as a percentage of the property value, the value can be determined as per the latest property tax assessment, or as a percentage of the price of the property at the time of the sale.
Some cities also levy a transfer tax, either in addition to or in place of a state assessment. Some states also specify exemptions, such as a sale which is necessary due to a death or divorce, or a transfer from parent to child.
In some cases the jurisdiction specifies which party pays the tax, but in some cases it is up to the buyer and the seller to negotiate who makes the payment. In either case, the tax can be rolled into the other closing costs associated with the transfer, so that a separate transaction is not required.
The purpose of transfer taxes varies as widely as do the rates, since each state determines its own use. In many cases the money goes into the state’s general fund; in some it is used to protect natural resources. Overall, however, it’s a tremendous source of revenue for local government, and since it’s generally included with the closing costs, many buyers and sellers aren’t even aware that they are paying such a tax.
“Title fees” is a general term that refers to several fees and expenses that are charged when buying or selling a home; these fees are paid at the closing,
when the title to the property is actually exchanged. Besides the buyer and the seller, there may be several other parties involved in the process, such as the mortgage lender, real estate attorneys, the title company, and the settlement or closing agent.
There generally are a number of expenses that are all lumped into a group called “closing costs.” These costs are involved in the process of providing the closing services for the property exchange, and may include an appraisal fee, a recording and/or notary fee, and a survey fee.
Sometimes all of the closing costs are referred to as “title fees,” but often the title fee means only the specific costs associated with researching and insuring the property title; this process guarantees that the seller does in fact legally own the property and that there are no liens on the property due to unpaid taxes or contractors.
An insurance policy is usually purchased as well, which will pay off in the event that the title search was somehow incomplete or flawed, and this protects the buyer’s interest so that he cannot be encumbered by any event that took place before he purchased the property.
While annoying and perhaps seeming unnecessary, title fees do serve a critical function in the closing process. If a third-party did not step in to verify that the title is clear, the property could be caught in the middle if a dispute ever arose in the future, which could jeopardize the buyer’s ownership.
These fees vary greatly by lender, so it makes sense to shop around, not only for the best interest rate, but also for the lender that offers the best deal in terms of overall closing costs.
You can find the total estimated amount of your closing costs and title fees in Block 4 on your GFE (Good Faith Estimate) provided by your chosen mortgage lender. If you go forward with that lender, your actual fees cannot exceed the GFE estimate by more than ten percent.