Updated April 2026

Maryland Real Estate Exam: Closing Costs Breakdown

Last updated: April 2026

For aspiring real estate professionals preparing for the Maryland licensing exam, mastering the intricacies of settlement procedures is non-negotiable. The settlement table is where all financial agreements culminate, and understanding the precise allocation of fees is a core competency tested on the state exam. This comprehensive guide details the Maryland-specific closing costs breakdown, ensuring you are fully prepared to accurately estimate buyer and seller net sheets. For a broader overview of all exam topics, be sure to review our Complete Maryland Exam Guide.

Understanding the Regulatory Framework

Before diving into the mathematical breakdown of closing costs, candidates must understand the federal and state laws governing real estate settlements. At the federal level, the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) dictate how and when closing costs must be disclosed to consumers.

TRID and the Closing Disclosure

The TILA-RESPA Integrated Disclosure (TRID) rule requires lenders to provide a Loan Estimate within three business days of receiving a mortgage application. More importantly for the settlement process, the lender must provide the Closing Disclosure (CD) to the buyer at least three business days before consummation of the loan. The CD provides a line-by-line breakdown of all closing costs, ensuring transparency and preventing unexpected financial burdens at the settlement table.

Maryland Transfer and Recordation Taxes

One of the most heavily tested areas on the Maryland state portion of the exam is the calculation and customary splitting of transfer and recordation taxes. Unlike some states where these are nominal fees, Maryland's taxes represent a significant portion of closing costs.

The State Transfer Tax

Under the Maryland Real Property Article, the standard state transfer tax is 0.5% of the actual consideration (the purchase price). By custom and standard practice in Maryland residential real estate contracts, this cost is split equally (50/50) between the buyer and the seller unless negotiated otherwise.

County Recordation and Transfer Taxes

In addition to the state tax, each of Maryland's 23 counties (and Baltimore City) levies its own recordation tax and, in most cases, a county transfer tax. These rates vary widely across jurisdictions. For example, Montgomery County and Prince George's County have different rates and calculation formulas. Like the state transfer tax, customary practice dictates a 50/50 split of these local taxes between the buyer and seller.

The Maryland First-Time Homebuyer Exemption

This is a critical exam topic. Maryland law provides specific relief for first-time Maryland homebuyers. If the buyer has never owned residential real property in Maryland that served as their principal residence, the state transfer tax is reduced from 0.5% to 0.25%.

Crucially, the law mandates that this reduced 0.25% state transfer tax must be paid entirely by the seller. The buyer pays 0% of the state transfer tax in this scenario. Note: This exemption applies only to the state transfer tax; county taxes are still typically split 50/50 unless local county exemptions apply.

Typical Closing Cost Breakdown

To visualize how these costs impact a transaction, let's look at a typical breakdown of closing costs for a buyer purchasing a $400,000 home in Maryland.

Average Buyer Closing Costs ($400k MD Home)

Buyer's Customary Costs

On the Maryland exam, you will need to identify which party typically pays specific fees. The buyer is generally responsible for:

  • Lender Fees: Origination fees, discount points, and credit report fees.
  • Title Insurance: Both the lender's policy (required) and the owner's policy (optional but highly recommended).
  • Appraisal and Inspections: Home inspection, pest inspection, and lender-required appraisals.
  • Prepaids and Escrows: Advance payments for homeowner's insurance, mortgage interest (from closing date to the end of the month), and property tax escrows.
  • 50% of Transfer/Recordation Taxes: Unless they qualify for the first-time homebuyer exemption.

Seller's Customary Costs

The seller's side of the Closing Disclosure will typically feature the following deductions from their proceeds:

  • Brokerage Commissions: The fee paid to the listing broker, who then compensates the cooperating (buyer's) broker.
  • Mortgage Payoff: The outstanding balance of the seller's existing mortgage, plus any accrued interest.
  • 50% of Transfer/Recordation Taxes: Or 100% of the reduced state transfer tax if the buyer is a first-time Maryland homebuyer.
  • Release Fees: Costs associated with clearing the seller's mortgage lien from the public record.

Prorations and Escrows at Settlement

Proration is the proportional division of ongoing expenses between the buyer and seller. In Maryland, property taxes are a primary focus for proration calculations on the exam. Maryland's property tax year runs from July 1 to June 30.

Proration Example Scenario:
A property closes on September 15th. The annual property taxes are $3,600, and the seller has already paid the bill in full for the year (July 1 - June 30). Because the seller paid in advance, the buyer must reimburse the seller for the time the buyer will own the home (September 16 through June 30). Using a 360-day statutory year (30 days per month), the buyer owes the seller for 9.5 months of taxes ($3,600 / 12 = $300 per month x 9.5 = $2,850). This appears as a debit to the buyer and a credit to the seller.

It is also important to understand how municipal charges factor into closing. For a deeper dive into municipal fees that might appear on a settlement statement, read our guide on understanding Maryland special assessments.

Ethical Considerations in Settlement Estimates

Maryland real estate licensees have a fiduciary duty to provide accurate financial estimates to their clients. Providing a net sheet that drastically misrepresents closing costs is not just poor customer service; it is an ethical violation. Licensees must be diligent in verifying local county tax rates and HOA front-foot benefit charges before presenting figures to a client.

For more information on maintaining compliance and upholding fiduciary duties, review our articles on Maryland real estate ethics and standards and Maryland advertising regulations and compliance.

Frequently Asked Questions (Maryland Closing Costs)

1. Who customarily pays the transfer and recordation taxes in Maryland?

By custom and standard contract language in Maryland, state and county transfer and recordation taxes are split 50/50 between the buyer and the seller. However, this is negotiable between the parties.

2. How does the Maryland First-Time Homebuyer exemption work?

If a buyer has never owned a principal residence in Maryland, the state transfer tax is reduced from 0.5% to 0.25%. By state law, the seller is required to pay this entire 0.25% state transfer tax, meaning the buyer pays 0% of the state transfer tax.

3. What is the Maryland property tax fiscal year?

The property tax year in Maryland runs from July 1 through June 30. This date range is essential to memorize for calculating tax prorations on the state exam.

4. Can a real estate agent conduct the settlement in Maryland?

No. In Maryland, settlements are typically conducted by a title company or a real estate attorney. While the real estate agent should attend to support their client and review the Closing Disclosure, they do not legally conduct the closing or disburse the funds.

5. What is the difference between an owner's title policy and a lender's title policy?

A lender's title policy is required by the mortgage company and protects the lender's investment up to the loan amount. The owner's title policy is an optional (but highly recommended) one-time fee paid at closing that protects the buyer's equity against hidden title defects, forged documents, or undiscovered liens.

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