REO's and Transfer Taxes, and Other Associated Costs

[Russell Brazil]

I often have to educate some of the newer investors I work with about this fact. This is at least the case in DC, Maryland and Virginia, that the buyer of an REO pays 100% of the transfer taxes and redecoration taxes.

In these jurisdictions a standard sale typically splits these fees 50/50 between buyer and seller, but banks are exempt from this so the buyer pays 100% of the fees. Depending on the county or city you are in, these costs can run as high as 3% of the purchase price. Baltimore City for instance has a tax of 1.5% for the city, plus .5% to the state for transfer taxes, then $10 per $1,000 for redecoration taxes.  This can add significant amounts of money to your closing costs.

Another huge issue I often see with REO's is HVAC systems that are either dead, or very close to death. These systems may not have been run in years, and while they may appear to function when you buy the property, often die soon after.

So often a buyer merely looks at the price of the REO and think that it is a deal, but do not realize these extra costs that come along with buying an REO.