Bob Spaulding’s letter to the editor of the Ithaca Independent has to perfectly convey the sentiments of many potential home owners and ALL realtors in the United States. Bob attempts to write an objective article about the economic harm a mortgage recording tax would impose on the overall economy, but his primary interest is the 6% any real estate agent typically receives for homes that they help to sell. Not criticizing, but just saying.
Given Bob’s gift for writing, I wish he would write a letter on the ridiculously complicated subject of closing costs come mortgage time. The long and confusing list of closing costs is very negotiable with respect to whether the buyer or seller covers them. In fact if you want to play hardball and can afford to walk out the door, during closing time just bluntly refuse to pay for overpriced closing cost enduring all pregnant silences until they give in.
The MRT Bob mentions sounds much like a typical closing cost where one wonders why in the world something so trivial would cost so much! For example, we had to pay a courier fee which was the cost of “transporting documents” to complete the loan transaction. This was all done electronically at essentially a zero cost to the Title Company! A lot of BS.
Also a title search fee was charged to us to be sure nobody had a claim on our land. Why should buyer have to pay for that??! Should be the Title Company’s responsibility to make sure the deed is free and clear.
The Ithaca Board of REALTORS opposes A.6682 (Lifton)/ S.4661 (O’Mara), a bill that would authorize Tompkins County to impose an additional $0.25 per $100 to the Mortgage Recording Tax (MRT). This tax increase would negatively impact the residential and commercial real estate market, as well as homeowners seeking to refinance existing mortgages.
We are convinced that now is definitely the wrong time to further depress real estate activity by adding additional oppressive taxes. In fact, it would be seriously counter-productive. Our local real estate market is just beginning to show signs of recovery. Real estate sales are a prime factor in the health of our economy; so much so that leading economists use real estate sales to gauge recession and recovery. Home sales typically spur the local economy by increasing spending for repairs and improvements, landscaping, appliances, furniture, and the list goes on and on.(his observation is spot on as increasing home sales is strongly correlated with a long list of economic growth items) All of these activities generate an increase in sales tax, a better and more productive source of revenue.
The total tax on a real estate transaction, including transfer taxes that are paid by the seller and the portion of the MRT paid by the bank, is nearly $3,000. With the additional tax proposed by A.6682/S.4661, a homebuyer would pay around $1,350 for mortgage recording taxes on a $180,000 mortgage (median sales price) in Tompkins County. The proposed increase in the Mortgage Recording Tax would mean that the MRT for the home buyer is increased by 50%. This is in addition to the $5,445 this same homebuyer will have to pay in annual property taxes.
The Ithaca Board of REALTORS views the MRT as an unreliable source of revenue to support on-going expenses due to its dependency on the real estate market and mortgage interest rates. The “Mortgage Bankers Association’s Weekly Survey” points out that the refinance share of mortgage activity accounts for 75% of total mortgage applications. In December 2012 mortgage refinancing accounted for 83% of total mortgage activity. With 30-year mortgage interest rates currently at or below 3.5%(but rising), the rush to refinance existing mortgages could soon become a thing of the past. Reliance on a revenue stream based completely on the assumption that mortgage refinancing will remain stable is at best problematic. While this source of potential revenue could meet short-term needs, it almost certainly will result in increased property taxes in future years.
The Mortgage Recording Tax is a highly regressive tax affecting those least able to afford it. It would have minimal, if any, effect on the wealthy who often are able to make home purchases without applying for a mortgage. Low and medium income buyers on the other hand and, in particular, first-time home buyers are the individuals that would directly feel the burden of an increase in the MRT. Many of these prospective buyers have excellent credit and good jobs, but are marginal buyers simply because they lack the cash to close a transaction. For them any increase in an already regressive tax quickly becomes an oppressive tax. (any tax is oppressive, but I get your point)
In the final analysis it can be clearly shown that a healthy, vibrant economy depends in large measure on a healthy real estate market. Real estate sales are the goose that lays the golden egg. Let’s not cripple the goose.
Bob Spaulding, President, Ithaca Board of REALTORS