Home › Articles › How Baltimore Ground Rent Affects Appraisals
Baltimore ground rent separates ownership of the land from ownership of the house, so the homeowner holds a long-term lease and pays annual rent to the ground rent holder. Appraisers account for it by valuing the home and considering the redemption price, which Maryland law sets by capitalizing the annual rent at 6 percent.
I am Ed Drost, a Maryland State Certified Residential Appraiser and FHA appraiser. I have appraised homes across Baltimore City and Baltimore, Carroll and Harford counties since 1989, and I answer these questions every week for buyers, sellers and families. This article is part of our Baltimore appraisal Q&A series.
What is ground rent?
In a ground rent arrangement, one party owns the land and another owns the house on it. The homeowner holds a long-term lease, often for 99 years, renewable forever, and pays annual rent, typically a modest amount, to the ground rent holder. It is common in Baltimore and much of central Maryland, particularly on older rowhouses.
Maryland has restricted ground rents over the years: the creation of new ground rents on residential property was prohibited in 2007, and rent holders were required to register their interests with the State Department of Assessments and Taxation (SDAT). Rules in this area have changed, so confirm the current status of any ground rent with a title company or attorney.
How is the redemption price figured?
Maryland law allows the homeowner to redeem the ground rent, buying out the land and ending the lease. The redemption price is based on the annual rent capitalized at 6%, meaning the annual rent divided by 0.06, plus certain amounts and fees that the law allows.
| Annual ground rent | Redemption price (rent ÷ 0.06) |
|---|---|
| $90 | $1,500 |
| $120 | $2,000 |
| $240 | $4,000 |
| $600 | $10,000 |
The actual amount at closing can include additional costs, so ask a title company or attorney for an exact number.
How do appraisers account for it?
Appraisers look for how the market treats the property. The usual approach is:
- Identify whether the subject and each comparable carry ground rent, and the annual amount.
- Value the property using comparable sales, as if free of ground rent.
- Consider the redemption cost in the comparison. If the subject has a ground rent and the comparable sold without one, the buyer takes on a cost, so the appraiser adjusts for it. If the comparables carry similar ground rents, the adjustment may be small.
How it is reflected depends on the local market and the data, so two careful appraisers should explain their reasoning in the report. Because the redemption price is usually a small share of a home's value, ground rent rarely changes value dramatically, but a missing or wrong adjustment can matter in a tight transaction.
What do buyers and lenders look for?
- Disclosure. Maryland sellers and agents typically disclose ground rent, and the title search should show it.
- Registration. A ground rent that was never properly registered can have legal consequences. A title company or attorney can verify its status.
- Payoff or redemption. Some lenders may require the ground rent be redeemed or addressed before closing. Ask early.
- Unpaid rent and liens. Missed payments can lead to legal action, so verify that the rent is current.
What should owners do?
- Find your ground rent bills or receipts and the lease, if you have them.
- Look up the property's record on the state's SDAT website and ask a title company or attorney about its status.
- Know your redemption price before you sell, and decide whether redeeming makes sense.
- Give the appraiser the ground rent amount and holder when they visit, so it is not overlooked.
Ground rent is one of many Baltimore details that affect an appraisal. See our Top 31 Baltimore Appraisal Q&As for more, and our Pre-Appraisal Checklist to prepare for the visit.
Common questions
What is ground rent in Baltimore?
Ground rent is a long-term lease arrangement in which the homeowner owns the house but pays annual rent to a separate owner of the land. It is common on older Baltimore rowhouses.
How is the ground rent redemption price calculated in Maryland?
The redemption price is based on the annual rent capitalized at 6 percent, meaning the annual rent divided by 0.06, plus certain amounts and fees allowed by law. A $120 annual rent works out to about $2,000 before fees.
Does ground rent lower a home's appraised value?
It can, modestly. Appraisers consider the redemption cost when the subject carries a ground rent and the comparable sales do not, but because redemption prices are usually small relative to the home's value, the effect is usually limited.
Can I get rid of ground rent in Baltimore?
Yes. Maryland law allows owners to redeem the ground rent by paying the redemption price. A title company or attorney can prepare the paperwork and give an exact cost.
Do lenders care about ground rent?
Some do. Lenders may require the ground rent to be disclosed, current, or redeemed before closing, so ask your lender early.
Sources
This article is general information, not legal, tax or financial advice. Rules and lender procedures change and every transaction is different. Confirm current requirements with your lender, a Maryland attorney or a title company.
More articles
What Is a Reconsideration of Value (ROV) and How Do You Overturn a Low Appraisal?
How to challenge a low home appraisal: what evidence works, what does not, and your options if the value stays the same.
Who Legally Owns the Appraisal Report: The Homebuyer or the Mortgage Lender?
Who owns the appraisal you paid for? The lender is the client, and you have a legal right to a copy. What that means in practice.
What Is an Appraisal Gap and How Does an Appraisal Waiver Impact Purchase Contracts?
What happens when the appraisal is below the price? A worked example of the gap, gap clauses, and the two kinds of appraisal waivers.