Who's Afraid of a Ground Rent?

By
Real Estate Broker/Owner with HomeRome Realty 410-530-2400 311291

August 08, 2006

Who's Afraid of a Ground Rent?

Maryland is known for many things: steamed blue crabs, the U. S. Naval Academy, interesting politics, the Chesapeake Bay, and that leftover from medieval days...the ground rent. The concept came to America from England with colonists, and took hold in Baltimore in the mid-eighteenth century. We are one of only three states where ground rent has been used extensively: Maryland, Pennsylvania, and Hawaii. While many properties are "fee simple," meaning including the land, there are still thousands in Maryland that have "ground rent."

Ground rent is such a strange concept that many people - including some Realtors® - are confused and even frightened away from good properties. Out of state lenders who have never seen a ground rent often need help to understand what it does and doesn't mean.

Ground rent is an annual fee paid to the owner of the land. If you buy a house with a ground rent, you will pay a small amount each year - $100 to $400 or so - to the owner of the ground rent. Ground rents can be redeemed, and if you offer the owner full value, the owner must sell it to you. Annual ground rents are generally 6% of their value, so a $150 ground rent could be purchased for $2,500.

If ground rents are easy to redeem, why are there still so many of them around? Because in many cases it does not make financial sense to buy the ground rent when you buy the property. The monthly cost is usually a few dollars. And later you can offer less than full value which the owner might accept. There are a couple of traps to avoid if you decide to buy a ground rent: all owners have to sign off on the sale of a ground rent, and the sale has to be recorded. This means a title inspection, and the process could simply be more costly than it's worth.

The part that scares people is the idea that the ground rent owner could claim the property - and whatever sits on it - if the ground rent is not paid for 6 months or more. But if you have a mortgage, the ground rent will be included your payment so there's no chance you'll overlook it.

You have many things to think about when deciding to buy a home. If you love the house, don't be put off by a little ground rent. It's an old tradition from the days of royal land grants, but a knowledgeable 21st century Realtor will make sure you're protected.

Posted by

Margaret Rome
HomeRome Realty
Broker/Owner/Realtor®

Baltimore, Maryland


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Comments (9)

Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Margaret, That is the most interesting thing I've read in a while. Let me ask you this, are there individuals or companies that are in the business of purchasing these land rent rights? It seems to me like this may be an entire market of it's own. Is there a web site or info page that would have more info on this? Is this something that would be more likely to be attached to older homes? I have a milliion questions. Any info you could provide would be greatly appreciated. Thanks.
Aug 09, 2006 04:33 AM
Sharon Simms
Coastal Properties Group International - Christie's International - Saint Petersburg, FL
St. Petersburg FL - CRS CIPS CLHMS RSPS

In our area we have land leases, but they are quite different than your ground rent. I'll blog about it tomorrow.

Aug 09, 2006 07:12 AM
Branden Schroeder
Gybeset Homes - Annapolis, MD
Hi Margaret.  Your summary of ground rents was one of the most succinct and straightforward explanations I've read.  It'd be great to have your easy-to-understand blog re-printed as an article in local, state or even national realtors publication.  I'm down in Anne Arundel County, where there aren't many ground rents left, so I don't deal with them very often.  But, you are right, they aren't anything to be afraid of.  Like most things, it's the unknown that people are most scared of. 
Aug 11, 2006 09:51 AM
Ellie McIntire
Ellicott City Clarksville Howard County Maryland Real Estate - Ellicott City, MD
Luxury service in Central Maryland
I believe Missouri is the other state that does have ground rent.
Jan 21, 2007 10:36 PM
Ellie McIntire
Ellicott City Clarksville Howard County Maryland Real Estate - Ellicott City, MD
Luxury service in Central Maryland
I usually equate ground rent with a property that has a home owners association. It helps my buyers to feel more comfortable with the concept and not be afraid of buying a home with ground rent.
Jan 21, 2007 10:39 PM
Ellie McIntire
Ellicott City Clarksville Howard County Maryland Real Estate - Ellicott City, MD
Luxury service in Central Maryland
Usually ground rent is far more digestable than the front foot fee prevalent in Anne Arundel County or the CPRA tax in Columbia!
Jan 21, 2007 10:40 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Margaret

Fascinating! I had no clue that MD had these but I did know about HI. They sound a little bit like land leases.

Jeff

Apr 05, 2015 06:34 AM
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Selling the Main Line & Chester County

You learn something every day, glad to have read about this.

May 03, 2020 11:01 AM
Margaret Rome Baltimore 410-530-2400
HomeRome Realty 410-530-2400 - Pikesville, MD
Sell Your Home With Margaret Rome

Nick Vandekar, 610-203-4543 This post was written back in 2006 and it looks like I didn't comment OR the comments were lost.

Ground rents can no longer be created in Maryland but there are still properties that have them. You need to find out when you list the property.

May 05, 2020 07:52 AM