If you’ve ever sold a property in Washington state, you will remember the seller-paid excise tax. In King County, it is 1.78% of the sale price and is the responsibility of the seller. The tax is heftier than transfer taxes in other states, as Washington doesn’t collect income tax, so they make up for it on real estate sales.
For buyers looking to purchase a bank-owned (REO) property, you need to be aware of contract terms that attempt to make the buyer pay these taxes. While not the norm across the bank-owned homes I have seen, we have seen this from two different banks recently.
The Washington law that governs this excise tax is clear. WAC 458-61A-301 states that “The tax is imposed upon the seller.” In a normal transaction, it is not even a point of negotiation, as it is an expected and customary selling cost borne by the seller in Washington state. However, there are banks out there adding this seemingly innocuous term to their contracts: “Buyer to pay any transfer taxes.” Guess what, if you agree to that on a $300,000 home, your costs have just gone up by $5,340.
Can banks even do this, given the law in our state? Well, most terms of a real estate contract are negotiable, and the state ultimately doesn’t care who pays them, as long as the tax gets paid. If you or your agent are asleep during your negotiation, you can easily get stuck with this tax.
If you are negotiating on the purchase of a bank-owned home, this is one instance to get out your black marker to cross out this term and insist that they change it. Remind the bank that the tax is by law the responsibility of the seller here, which may differ from transfer taxes in other states. The unfortunate part about banks that take this stance is that they may still try to treat the excise tax as a “seller concession” and negotiate less because of it. IMHO, that is not right, but it is what it is, so buyer beware.