Category Archives: Tips of the Trade

Understanding DC Property Taxes & Closing Costs

Before purchasing a house in DC it is important to know that you don’t just pay the price you settle on you also pay additional fees known as closing costs.  It doesn’t stop there! Once you own the property you will also pay property tax!

CLOSING COSTS: Transfer / Recordation Taxes

In DC closing costs typically average 3% of the total transaction price.  If you are purchasing a $500,000 home you will pay close to $15,000 in closing costs.   Closing costs  break down into a variety of items but on of the biggest ticket items is the DC Transfer / Recordation tax.  Typically the buyer payers the recordation tax and the seller pays the transfer tax.    In some instances the buyer will be required to pay for both which is RIDICULOUS! Below is a quick break down of how much these taxes will run you at closing

* Transactions $399,999 and under are taxed at the rate of 1.1% of the purchase price. Example: $300,000 x 1.1% = $3,300. So the buyer and seller would each pay $3,300 for a total of $6,600 paid to DC.
* Transactions $400,000 and above are taxed at the rate of 1.45% of the purchase price. Example: $500,000 x 1.45% = $7,250. So the buyer and seller would each pay $7,250 for a total of $14,500 paid to DC.

Its important to recognize the difference in rate especially when a house is listed at $400,000 or slightly above. It benefits both parties for that price to be at $399,999.  Oh by the way…..if you think this is high you are correct. DC has some of the highest transfer taxes in the metro area, but we also have the lowest property tax rate.  If you plan to stay in the same DC home for a long time you will definitely save!

PROPERTY TAXES

Yes, they suck.  I get it!!!  But this is the only way the city can continue to improve and BTW we have the lowest rate in the area!  This is a pretty easy thing to explain so here we go:

Taxes, just like mortgages, are paid in arrears. Taxes are also paid semi-annually in DC.   So when you are paying your March tax bill you are really paying for the period of October to March.

* Taxes due on 3/31 for the period of 10/1 – 3/31.
* Taxes due on 9/30 for the period of 4/1 – 9/30.

The tax rate in DC is $.85 per $100 of assessed value.  If your property is assessed at $500,000 then your annual tax bill will cost $4,250 or two payments of $2,125.  If you are not currently receiving the HOMESTEAD DEDUCTION then make sure you get on that right away! It reduces your assessment by $67,500. So the $4,250 tax bill was just reduced to $3,676.25.   To learn more about the Homestead Deduction click here. To see if your property is currently receiving the credit you can click here and search for your address.

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Choosing the Right Lender….Or Else!

Wow it has been a long time since we spoke! Sorry for the delay people…that is if you are still out there listening. I promise to get better with my communication.  On that note lets talk about lenders!  So you found a house, your contract is accepted, your inspection is a success…..now what?!?!? I often tell my buyers that the inspection is the toughest part but given the week I have had I am going to go out on a limb and say that lenders are now the toughest part of the negotiation.

IMPORTANCE OF CHOOSING THE RIGHT LENDER

The lender you choose is in my opinion one of the single most important pieces of the deal.  Without an adequate lender you might as well throw the deal away from the start.   Each contract in the DC area has whats known as a financing contingency and appraisal contingency.  The financing contingency essentially states that on X day after mutual acceptance the buyer will deliver to the seller a letter from the lender stating that the loan is approved.  The appraisal contingency is similar but you are delivering notice that the appraisal has been completed and the purchase price is approved by the lenders underwriting department.   If you fail to deliver the financing contingency the seller could deliver a notice in which you have three days to respond. If you are unable to respond or produce a commitment letter from your lender then your contract  becomes void.  If your contract because void because of this notice then your earnest money deposit is NOT at risk. HOWEVER if you release the financing contingency and later on in the transaction your deal falls apart because of financing your earnest money deposit is then at risk….yeah, that sucks!   With regards to the appraisal, once the seller delivers notice you have three days to produce the appraisal and remove the contingency. If you fail to do so the appraisal contingency is lifted and the contract moves forward.  What really sucks is if you lender misses this deadline and then you find out 10 days later that the appraisal came in lower than anticipated and you now have to make up the difference or risk losing your earnest money deposit.  Bottom line is that your lender needs to have their shit together or your get screwed. Scared yet? Check out some helpful pointers below:

WHAT TO LOOK FOR IN A LENDER

If the first part of their name starts with Bank and ends with America STAY FAR AWAY.  That is my first tip.  I have worked with this bank many times and every single time they let my clients down.  The bitch of this is that the clients end up paying this bank $400-$500 for an appraisal which is non-refundable! So….what to lookout for:

1) You are trusting this person with your future…30 years of your future to be exact so before you start searching for homes start with a search for lenders.  Be sure to interview them thoroughly and see what services and commitments their bank offers. Aside from rate (which isn’t the most important thing) what else do they offer? How can they be held accountable if they fail to meet deadlines? Afterall…..if you don’t meet your deadline you can lose your EMD so why shouldn’t they lose something besides your business?
2) Direct and local are always best.  Stay away from the big chain banks like Bank of America and Wells Fargo.  These banks are too big and have way to many layers.
3) Credit Unions and USAA generally can’t compete.  Yes Hill staffers, that means you don’t belong using your Congressional Credit Union account when you are ready to take the plunge and buy.  Credit unions often have very lengthy approval processes and cannot offer competitive time frames with regards to the financing and appraisal contingencies. Also if you are in a competitive situation and the seller is looking for a quick settlement, that’s not going to happen with a credit union. Sorry!
4) Underwriting should be in-house. When this happens it means your loan officer has quick access to the person in control of seeing the loan through and when deadlines creep up they can act quick and deliver.
5) If you have to call a 1-800 number every time for an update that’s probably not a good lender!
6) Rates aren’t everything. How much do they require you put down?  What options do they give you if any? Some lenders now do 5% and 10% down loans with no PMI!
7) If you don’t understand what you’re doing ASK QUESTIONS!!!! I hate it when buyers get to the closing table and have no clue what they signed up for.

DO REALTORS GET A KICKBACK FROM LENDERS THEY RECOMMEND

So you are hesitant to accept my recommendation of a lender because you probably think I get some sort of kickback or incentive? WRONG!!!!!! In DC, MD and VA it is illegal to accept any sort of financial incentive or kickback from lenders, title companies or any other parties to the transaction.  That doesn’t mean it doesn’t happen but for the most part it doesn’t.  Realtors recommend people because these are typically people we have good working relationships with and we know they are going to get the job done.   Plain and simple.

Well, that’s if for now! Stay tuned for more.

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A Tip To Sellers: BE FLEXIBLE

This is more of a rant than anything but I know if you listen to this small yet simple piece of advice as a seller you will be amazed at how much quicker your home goes!   I can’t tell you how many times I have needed to cancel showing appointments because a seller will not accommodate a showing.   If you want to sell your house quickly be flexible.  Realize you live in a metropolitan area and people are BUSY.   Let buyers see the home when THEY WANT TO SEE IT, not when you want to show it.  With that being said I think it is perfectly reasonable to set boundaries….most realtors will advice their clients to have the house available between 9:00AM – 8:00PM.   I know that is a huge window and I know that you might need to step out during or make arrangements to come home later but I am telling you if you cooperate and work within those boundaries it will significantly increase the chances that you sell your home quicker.  FINALLY put a lockbox on the home.  Yes this means people (accompanied by realtors) can enter the home anytime during the day so put your expensive jewelry away for the time being.  You can also make a simple request that agents call and leave  a message before going out.  I understand its difficult to let random strangers into your home throughout the day but the more flexible and easy-going you are the higher rate of success you will encounter….more showings, more offers (hopefully), and a higher selling price in the end.

Thanks for listening!

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