Closing costs are the fees and charges associated with purchasing real estate in Ocean City and the surrounding areas, which are in addition to the purchase price. Closing costs will vary from real estate sale to real estate sale depending on the property type, purchase price and the overall structure of the real estate deal that was negotiated. This article breaks down the various closing costs you can expect when buying real estate in Ocean City and the surrounding areas. Understanding closing costs upfront will help you budget and account for them effectively throughout the home buying process.
Transfer and Recordation Costs
The largest portion of your closing costs will be the State and County recordation and transfer fees that are charged on all property sales throughout the State of Maryland. The total amount of these fees in Worcester County, Maryland is 1.66% of the purchase price (.50% for State transfer tax, .50% for County transfer tax and a .66% recordation tax). The 1.66% of recordation and transfer fees are typically split equally between the Buyer and Seller, however they are a negotiable item.
Prorations
Items that are paid in advance by the Seller, such as property taxes and association fees will be prorated to the date of the property settlement. The Seller will be reimbursed for the amounts of these items that post-date settlement and the Buyer will then be paid in full for these items through the applicable time period. As an example, condominium fees are typically paid quarterly. Let's assume that the quarterly condominium fees are $1500 and the settlement date is May 1st. The Seller would have paid the second quarter condominium fees to cover April, May and June. On the closing statement the Buyer would reimburse the Seller a total of $1000 for May and June condominium fees and the Buyer's condominium fees would then be covered until July 1st. This process would be replicated on the settlement statement for any items the Seller has paid in advance that the Buyer will benefit from post-closing.
Lender Fees
If you will be getting a loan to purchase real estate in Ocean City or the surrounding areas you will be responsible for the Lender fees that are associated with financing the property. Lender fees include items such as origination/application fees, credit reports, HOA verification, prepaid interest, tax services and appraisals. If you "buy the interest rate down" to get a lower rate there will be additional costs associated with the respective interest rate points. Mortgages that are made with less than a 20% down payment typically involve mortgage insurance, which will also be an additional cost. Lender fees will vary from Lender to Lender so do your research and look for a Lender that offers competitive fees combined with a proven track record of quality service.
Appraisal
If you will be financing your coastal real estate purchase the Lender will require that an appraisal be performed to verify the value. The appraisal will be ordered by the Lender and the appraisal fee is typically charged to the Buyer at the time the appraisal is performed. Appraisals for Ocean City properties typically range from $300 to $500, but that can vary depending on the property type, size and location.
Property Inspections
Property inspections ensure the Ocean City property you are purchasing is in good condition and helps identify potential problems that need to be addressed by the Seller before finalizing the purchase. The Buyer is typically responsible for the costs associated with any inspections they would like to have performed on the property they are purchasing. The typical structural and mechanical inspection costs between $300 and $500 depending on the property type and size. The results of the structural and mechanical inspection, as well as the property type and location will dictate any other property inspections that should be performed.
Title Company
The Buyer chooses the Title Company that will conduct the closing for the property. The Title Company will perform the title search to ensure it is unencumbered, prepare the deeds for the property transfer, account for all monies, work in conjunction with the Lender (if applicable) to prepare all of the necessary documentation and conduct the actual closing. Typical Title Company charges include a closing fee, title examination charges, and document preparation fees. The Title Company will also be the entity that will offer you title insurance, which is required on financed purchases and optional on cash purchases. The Title Company fees will vary depending on the purchase price, property type and the overall structure of the negotiated real estate contract.
Escrow Accounts
If you are obtaining financing for your coastal real estate purchase the Lender will likely require that escrow accounts be set-up for the real estate taxes and property insurance. Lenders have formulas they utilize to determine the amounts that need to be collected at closing to set-up the escrow accounts. Escrow account set-up amounts will vary based on the purchase price, property type and where in the real estate tax year you settle.
I advise my clients that are financing their real estate purchases in Ocean City and the surrounding areas to expect their closing costs to be approximately 3% to 4% of the purchase price, with the higher-end of that range being for less expensive properties. Closing costs will be in the 2% to 3% range for cash purchases. In some instances a closing cost credit from the Seller can be negotiated into the real estate contract to cover some of these costs if needed. Once my clients identify a property type and targeted price range I can have preliminary settlement statements prepared by the Title Company that will outline all of their closing costs so they know what to expect and can plan accordingly.
If you have any other questions or would like to discuss purchasing real estate in Ocean City, Maryland or the surrounding areas in greater detail, feel free to contact me directly anytime at 443-614-9179 or via email below.
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