If you’ve looked at a settlement statement lately or you’ve just received your initial Loan Estimate, no doubt you’ve noticed there are more than just a few line items. These estimated closing costs are broken down into lender and non-lender charges. Lender fees are listed first and are the ones the mortgage company charges the borrowers in order to process and approve the loan application. Common lender fees might include a Loan Processing charge or an Underwriting fee. An origination fee will also most likely be listed as well.
Beyond the lender fees are non-lender charges. These non-lender charges are for services the mortgage company needs in order to approve the loan application and keep the loan in compliance with lending requirements. For example, there will be an escrow fee charged by an escrow company who will oversee your closing. Other common non-lender charges include title insurance, an appraisal, credit report, tax service and a flood certificate.
These are one-time charges. In addition to these one-time charges are what is known as recurring fees which will happen again in the future such as property insurance, interest to the lender and impound accounts should you decide to include a monthly amount for property taxes and insurance.
These fees are all listed on a typical loan estimate. Yet these fees are for services paid to private companies for services rendered. One fee you will see that is not charged by a private company is the Transfer Tax. And you’ll notice right away it’s not a fee- it’s a tax.
Let’s dig a little further and explain what the transfer tax is, who pays it and why.
The Transfer Tax in San Diego
When real estate changes hands, it literally transfers from one owner to the new one. And, city and county agencies have the authority to charge a tax on that transfer here in California. In San Diego County, there is both a transfer tax charged by the city as well as the county. This tax is based upon the sales price of the home and both the city and county charge $0.55 per $1,000 in value.
To do the calculation, multiply $.055 by the taxable unit, which is each $1,000. For a $500,000 sale, that means 500 units at $1,000 each. $0.55 X 500 = $275. Both the city and county will collect this $275 transfer tax for a total of $550. Whether the property is located in Carlsbad or La Mesa or any other city in San Diego County, they all charge the transfer tax at the same rate.
Who pays this tax?
Here in California there is no mandate that requires one party to pay the tax yet instead it’s based upon tradition and here it’s the seller that normally pays the transfer tax. But again that’s not a rule but simply custom.
A transfer tax is like any other cost associated with buying or selling a home. If the seller is paying the transfer tax, the fee will be listed on the settlement statement but it will appear on the seller’s side of the equation and not yours. However, the transfer tax can be negotiated just like any other fee. The sellers may ask the buyers to pay for it. Or, the buyers could respond and decline to pay the transfer tax or perhaps agree to split the charge.
While the transfer tax is charged on all property transfers there are exceptions to this rule. In some areas there are exemptions from this tax in the course of a gift from a parent to a child, a gift to a relative or between partners. In order to claim an exemption, you’ll need to record the transaction and provide documentation that provides written proof of the exemption eligibility at the time of recording.
Fee Negotiation
So who pays? Again, the seller is usually the party that pays this transfer tax but is not legally obligated to do so. It’s all part of the negotiation process. When owners sell a home they typically have another home to move into and under contract. In such a situation, there will be a transfer tax on the current home and the new one, with the sellers paying the tax which is deducted from the proceeds of the sale.
But all closing costs are in fact negotiable and most often it depends upon local market conditions.
For example, let’s say that a particular area is a strong seller’s market. Homes are being sold and bid higher than the list price and new listings don’t stay on the market for very long. This means the seller has the upper hand during the back and forth with an offer.
When a seller receives an offer from a buyer, the seller might agree to the price but counter with, “Okay, but you pay all transfer taxes at closing.” Or, the opposite can occur and the market is somewhat slow. When the offer is made, it’s less likely the seller will demand the buyers pay the transfer tax and will take care of the tax on their own at the closing table.
