Closing costs continue to vary widely across states

The map provides average closing cost price ranges for each state in 2021, with taxes, while the attached table lists each state's actual closing costs, both with and without taxes.

The five states (and district) with the highest average closing costs, including transfer taxes, are the District of Columbia ($29,888), which is in its own price stratosphere, followed by Delaware ($17,859), New York ($16,849), Maryland ($14,721) and Washington state ($13,927), with all but one hailing from the Northeast.^Footnote1

In contrast, if you work in the nation's midsection, your clients will typically benefit from more affordable average closing costs. After Missouri ($2,061), the lowest closing cost state, including taxes, comes Indiana ($2,200), North Dakota ($2,501), Wyoming ($2,589) and Mississippi ($2,756).^Footnote1

While transfer taxes, which are imposed on the transfer of title of real property, account for a disproportionately high percentage of closing costs in many states, there are actually 13 states with no real estate taxes, plus two others with only some municipal or county taxes (see the table for details).^Footnote2 As you'd expect, in states with transfer taxes, they are based on the value of the property transferred.

State statutes may also stipulate whether the buyer and/or seller is responsible for their payment; otherwise, their payment is set by convention or could be negotiated. Most statutes include cases in which the transfer is even exempt from taxation, such as in a divorce.

If you're not familiar with the term real estate transfer tax, they're also known by other names in different states, including realty transfer tax, deed transfer tax, stamp tax, conveyance tax, documentary transfer tax and recordation tax.

A general explanation for the large disparity in the assessed transfer tax, including none at all, is that our 50 states, plus the District of Columbia, vary widely in the amounts and mix of taxes they collect through property, income, corporate, sales, estate, gasoline, etc.

A recent, nationwide rundown on other closing costs fees, from the Federal Reserve, should give you a sense of how your state's fees compare to others.^Footnote3

• Lender application fee - $75 to $300
• Loan origination fee - 0% to 1.5% of loan amount
• Title search and insurance - $700 to $900
• Appraisal fee - $300 to $700
• Settlement/Closing fees, recording fees, attorney's fees - $500 to $1,000
• Land surveys - $150 to $400
• Private mortgage insurance (PMI) - the first payment is usually due at closing, generally from 0.5% to 1.5% of the loan amount
• FHA, VA and USDA loans- 1.75% of the loan amount (FHA); from 1.4% to 3.6% of loan amount (VA); and 1% of the loan amount (USDA)^Footnote3

You can help your clients process the impact of closing costs by having an open discussion on the subject early on. Plus, by recommending a loan preapproval^Footnote4 with a recognized lender, such as Bank of America, your clients can be well informed and any future surprises largely avoided.