How much do ground rents really cost home buyers?

As a clarification, this only applies to the "ground rent" as it is known and loved in Baltimore City, Maryland...

After years of practice in Baltimore area, it seems that the ground rent only becomes an issue, when it in fact becomes an issue... otherwise, it is just treated as "just the way things are". Many realtors will tell you that having a ground rent does not detract from the value of the house. Of course, that's only partially true.

The truth is ground rents LOWER the resale value of homes, though in practice a home with a ground rent may have a contract price the same as homes without ground rents (i.e. good 'ol fee simple ownership). But in a tight market, that assumption may no longer be true.

So, it pays to know what a ground rent is actually worth.

What is a ground rent worth? There is a simple enough formula:

(1) Determine the redemption (payoff) amount of the ground rent.

(2) Subtract the ground rent redemption amount from the sales price.

Example: $100,000 house with a $90 ground rent.

Most ground rents are capitalized at 6%, so the formula looks like this:

$90/.06 = $1,500.00

$100,000 - $1,500.00 = $98,500.00

Thus, had the property not been subject to the $90 ground rent, it would be worth $1,500 more.