Delaware has the highest real estate transfer tax in the country. This means that more money changes hands at the settlement table. This means that fewer of our citizens can afford a home. This means that those who sell a home have less equity to advance themselves. And when that happens, our state’s economy takes a hit.
The Delaware General Assembly increased the state’s land transfer tax by 1% in 2017 to address a projected budget deficit of $ 400 million. That 33% increase made the state of Delaware’s real estate transfer tax – at 2.5% – the highest in the country. Add to that local transfer taxes, and individuals may have to pay up to 4% of the property’s value at the time of settlement – in cash. This is the money needed to pay the transfer taxes only, in addition to the settlement fee, which makes it difficult for Delawaren to own a home and ultimately is a blow to the real estate market and our state’s economy. .
A tax on real estate transfers is, in essence, a tax of discouragement. Taxes on cigarettes and alcoholic beverages are meant to discourage consumption, and the state transfer tax does exactly the same. It increases the price of real estate, reducing affordability.
As a real estate professional in Delaware, I have personally seen the impact of the 4% Real Estate Transfer Tax on the lives of buyers and sellers of properties. When qualifying as a buyer, that buyer may have great credit and the ability to make a monthly mortgage payment, but not have the cash flow to pay property transfer taxes to complete the purchase. Plus, in today’s market climate, most sellers don’t even consider buyers who might need settlement assistance.
The impact is clearly evident when you consider the market activity following the increase in the real estate transfer tax as well as how Delaware compares to neighboring states. Research conducted by Econsult Solutions Inc. (ESI) in 2019 found that residential selling prices in neighboring counties of Pennsylvania and Maryland have exceeded selling prices in Delaware since the real estate transfer tax increased in 2017.
Beyond the burden on home buyers, our neighbors also enjoy a competitive advantage over economic development opportunities. The real estate transfer tax does not distinguish between residential and non-residential properties. So employers who evaluate real estate acquisitions in Delaware versus Maryland, Pennsylvania, or New Jersey may not find Delaware attractive.
The discussion on state property transfer rights must also take into account its sensitivity to market fluctuations. The tax on real estate transfers is an extremely unreliable source of income for a local or state budget. The drop in real estate sales caused by falling wages or increasing unemployment translates into irrecoverable tax revenues. Delaware real estate transfer tax revenue increased from $ 137 million in fiscal 2006 to $ 50 million in fiscal 2011 as the recession ended, before slowly rebounding in fiscal year 2006. during the 2017 financial year. This is a 63% drop in income and a strong indicator of the sensitivity of income from property transfer rights.
The COVID-19 pandemic, as many know, has had a huge impact on the housing market nationwide, and there is a severe shortage of inventory; house prices rise and houses stay on the market for shorter periods of time. The average home price in Delaware is up about 6.1% from 2019, which means most buyers have to pay more in real estate transfer taxes. It puts the dream of owning a home out of reach for those who don’t have the money to compete.
Homeownership is the very foundation of the American dream. Homeownership strengthens communities, supports healthier families and lays the foundation for our future.
The Delaware Association of Realtors believes that repealing the 1% real estate transfer tax increase this legislative session is the most important step it can take to boost homeownership, ensuring that Delaware’s economy has a chance to remain vibrant, strengthening our communities statewide, and establishing a more equitable and reliable source of funding for the essential programs and services everyone needs in State One.
This is the third consecutive year of forecast budget surpluses, and our state government is more solvent than ever. The opportunity to correct this situation puts us at the safest of margins. Lower the state’s share of property transfer taxes to 1.5%, bringing it back to the level it was before the 2017 increase, which was enacted to close a temporary budget gap. Now is the time to act.
Mia Burch is the 2021 President of the Delaware Association of Realtors.