ANNAPOLIS – Just days before the close of the 1995 legislative session, state lawmakers approved a reduction in closing costs for first-time home buyers, lauding it as an economic development step.
But opponents of the First-Time Maryland Home Buyers-Closing Cost Reduction Act of 1995 say it burdens other home buyers and sellers, who might decide to make up the difference in the price of the house or choose not to sell to a first-time buyer.
Effective Sept. 1, first-time home buyers are exempted from the state transfer tax, which is usually split between buyer and seller. The legislation presumes the seller will pay all the transfer tax — 0.5 percent of the negotiated price of the house.
In addition, the bill permits first-time buyers to pay property taxes twice a year for tax years beginning after June 30, 1996. In Maryland, homeowners now must pay a year’s worth of property taxes in advance.
Gov. Parris N. Glendening will sign the legislation, which was introduced on his behalf, a spokesman said.
“There is an absolute saving for the first-time home buyer,” said Del. Elizabeth Bobo, D-Howard, who voted for the bill.
Del. Frank S. Turner, D-Howard, agreed, saying he hopes it will “get as many people as possible into the market” and stimulate the economy.
Gene Burner, executive vice president of the Maryland Chamber of Commerce, said that first-timers’ biggest problem is not having cash on-hand. Semi-annual property tax payments will not eliminate any costs, but will defer some, he added.
Del. James F. Ports Jr., R-Baltimore County, favors the semi-annual payment of property taxes and would like to see that provision benefit all home buyers.
But because the measure also cuts out a transfer tax exemption for the first $30,000 of a home’s price, currently available to all home buyers, Ports voted against it. Loss of the exemption, he reasoned, means that other home buyers will pay more in closing.
Del. Victoria L. Schade, R-Anne Arundel, also voted against the bill, arguing that the transfer tax provision “shifts costs to sellers and other buyers.”
Ports agreed. “Overall, closing costs rose $2.8 million across the board,” he said.
Transfer tax revenue is earmarked for Program Open Space, which sets aside money for public land preservation.
“It’s a good vote for the environment and a good vote for open space,” Turner said.
Ports, however, noted that Program Open Space must return some of that money to the state’s general fund — currently 20 percent, and after July 1, 10 percent.
State officials estimate that there will be more than 62,000 home sales in fiscal 1997. Thirty-five percent will involve first-time buyers.
Among them may be Ashley Williams and Dario Campolattaro of Columbia, who are looking at Howard County townhomes in the range of $150,000.
The couple’s closing costs and downpayment would be about $11,000, according to Emily Lincoln, an associate broker at Re/Max Columbia. Under the new law, Lincoln said they would save about $1,200.
But Williams, 24, director of communications for the Howard County Chamber of Commerce, said the reduction wouldn’t help significantly.
Nor was she impressed with the opportunity to split property tax payments, saying that since the full bill ultimately had to be met, she’d rather pay it all at once.
“We know we could get more house for our money somewhere else,” she said, but the couple wants to stay in Howard County to be near their work and families.
While one of the legislation’s aims was to make Maryland attractive to businesses that relocate employees here, some lawmakers said that goal was secondary.
“I’m more interested in helping people who are already living here,” Bobo said, mentioning renters or those living with their families. The bill will help them get some equity and establish firm financial footing, she added.
Turner, for his part, called the legislation “a real incentive to keep people in Maryland.”
Some realtors agreed.
“This is a step in the right direction,” said sales associate Tim Wood of Coldwell Banker Nyman’s southern Prince George’s County office. “It’s a reduction in the amount of money you have to put out at settlement.”
There are a lot of people who can qualify for a mortgage, but fewer who are willing to set aside the resources to do it, he said.
Wood said he hopes that one day Maryland would join the majority of states, including neighboring Virginia, that collect property taxes in arrears instead of in advance. That, he observed, would eliminate the issue at settlement. The General Assembly has passed a resolution asking the governor to set up a task force to study this possibility. -30-