Construction & Real Estate
Cash at the Table Delaware has the nation’s highest state realty transfer tax BY WESLEY T. STEFANICK
POTENTIAL HOMEBUYERS in Delaware are being held hostage by a state realty transfer tax that is the highest in the nation, requiring a bundle of cash at the settlement table that cannot be rolled into their mortgage. Realty transfer taxes are not unique. The tax is assessed on property when ownership is transferred from one party to another, typically amounting to a specific percentage of the value of the property. Realty transfer taxes are usually shared equally by the buyer and the seller at settlement. In Delaware, both the state, counties, and most municipalities assess a realty transfer tax. In 2017, the Delaware General Assembly passed HB279, raising the state’s portion from 1.5 percent to 2.5 percent and eclipsing the rate levied by any other state in the nation. When the state’s share of 2.5 percent of the price of the home is combined with the local transfer tax, individuals can pay as much as four percent of the property’s value at the time of settlement on realty transfer tax alone. Realty transfer taxes and fees are a major burden on anyone buying or selling a property, including a home, land, or commercial business facility. This includes first-time buyers, seniors downsizing, civic groups, churches, and military families who must sell their homes when being transferred to another community. Those without enough savings or a ready source for the cash can’t move forward—a situation particularly affecting minority homebuyers. The result is a negative impact on housing costs and, therefore, economic development. Realty transfer taxes are inequitable, placing a greater financial burden on lower-income households and on a smaller share of the population. They are discriminatory because they are assessed against one type of 52
asset—real estate—while similar taxes are rarely applied to financial assets such as stocks and bonds. The amount paid in taxes for property transfer is arbitrary, far outweighing any government administrative costs associated with the purchase. No good or service is provided to the payer of a realty transfer tax, and it is neither systematically related to a household’s ability to pay nor to the benefits that movers derive from public services. Higher realty transfer taxes are restrictive, discouraging potential buyers from entering the market and current property owners from moving to another property. Realty transfer taxes are volatile and unreliable revenue sources that are sensitive to downturns in the market. In Delaware, revenue from the realty transfer tax fell 116 percent from FY2006 to FY2009 (the recession), demonstrating the sensitivity to market contraction. The Delaware Association of REALTORS® supports legislation lowering the state’s portion of the realty transfer tax to 1.5 percent, returning it to the level it was before the increase in 2017 was enacted to close a temporary budget gap. What can consumers do about it? Join us. Let your voice be heard! This is your time to effect change that impacts you, your family, your neighbors, your communities, and Delaware’s economy. Learn more about the realty transfer tax and take action at www. delawaretransfertax.com. n Wesley T. Stefanick is the chief executive officer of the Delaware Association of REALTORS®.
Novem b e r / Dec em b e r 2021 | DELAWARE BUSINESS
