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New buyers and sellers are often surprised to find out that when apartments change hands in New York City, they are accompanied by very high fees, potentially tens of thousands of dollars, which are called closing costs—and they cut both ways.
For sellers, these costs take a bite out of the proceeds. For buyers, closing costs can have a real impact on buying power and may impact a decision to buy one apartment over another. But the recent shift to a buyers’ market is easing some of that pressure off buyers
The swing means buyers have a lot more leverage over transactions these days, and not just when it comes to bargaining for a lower price. Brokers say, “Everything is negotiable,” pointing to a list of costs where buyers can find some new wiggle room. So closing fees that were once seemingly set in stone are now proving to be flexible.
If you’re jumping into the market, do it with eyes wide open. Read on for an overview of how to estimate your closing costs, as well as a few ways to save.
[Editor’s note: An earlier version of this article was published in January 2019. We are presenting it again here as part of our holiday 2019 Best of Brick week.]
How much to budget for closing costs in NYC
Along with a laundry list of administrative charges—a $100 UCC-3 filing fee here, a $250 lien search charge there—the big-ticket items you need to plan for are the broker’s commission, taxes, mortgage expenses, attorneys’ fees and building fees. Some, like move-in and move-out fees, are the same across the board, while others depend on the sale price, as well as what kind of apartment you’re dealing with (condos have higher costs for buyers) and whether you’re getting a mortgage or not. Below is a general guide, of course the actual sum will vary widely.
Buyers: 2 to 4 percent of the cost of the apartment
A good rule of thumb is to set aside roughly 2 to 3 percent of the purchase price or 3 to 4 percent if the apartment is over $1 million.
Closing costs will be higher if you’re buying a condo. First off, you’ll have to cover title insurance. The state determines rates for the insurance itself, and there are also various administrative charges. According to the calculator at Judicial Title, title insurance for a $1 million property is an estimated $4,500. (The estimate also provides numbers for other charges, like transfer taxes).
Co-ops don’t require title insurance, since technically there’s no transfer of title for real property, since you’re buying shares in a corporation.
Secondly, if you need a mortgage to buy a condo, expect to pay $2,000 to $3,000 for bank fees, including your bank attorney’s fees and an appraisal, which may start at $500 and climb quite a bit higher, depending on the purchase price. You’ll also have to cover a mortgage tax of 1.925 percent for loans over $500,000 or 1.8 percent for loans under $500,000. Again, this only applies to condos.
The last big charge is for attorney’s fees, which are usually about $3,000 for a standard deal and can increase for more complex transaction, such as purchases involving two units that you plan to combine, or if you are setting up an LLC to buy a condo, says Steven Hafif, a real estate partner at the law firm Abrams Garfinkel Margolis Bergson.
Kelly Klingman, a broker at CORE, points out that buyers will find more flexibility with new developments, not resales.
“The sponsor is now more frequently willing to pay the transfer tax and attorney fees. This is significant because it can add an additional 2 to 3 percent of the cost,” she says. You can expect to get a break in buildings where the developer has just a few units left to sell and they are willing to make a deal.
Sellers: 8 to 10 percent
Sellers can expect to pay a lot more in closing costs than buyers, largely because they have to cover the brokers’ commission, which is traditionally 6 percent (split equally between the listing and buyer’s brokers). However, when the market is in a cycle that favors sellers, it's possible to negotiate this down to around 5 percent.
The other big charge is a transfer tax of 1.825 percent if the sale price is over $500,000 or 1.4 percent for deals under $500,000.
Also, note that some buildings have flip taxes (also known as transfer fees). Flip taxes are more frequently found in co-op buildings, but some condo buildings have them as well. These are not really taxes, but a fee paid to support building reserves and capital improvements.
In some buildings, the buyer pays, and in others the seller. In the current market, more buyers are having success getting these charges waived.
Many buildings charge around 2 to 3 percent of the sale price, while others charge a percentage on the profit the owner is making over the cost, such as 10 percent.
Attorney Adam Stone of The Stone Law Firm, says in buildings where the buyer typically pays the flip tax, it is increasingly open to negotiation.
“A knowledgeable buyer is going to try to get a transfer fee covered,” he says.
A few unexpected expenses
The sponsor’s closing costs
One of the most shocking budget items for buyers of new construction is that they can be on the hook for the developer’s closing costs, including transfer taxes and attorneys’ fees, as well as their unit’s share of the super’s apartment, if applicable. This also applies to sponsor units in co-ops. Altogether, that can add up to hundreds of thousands of dollars, depending on the purchase price, says Tyler Whitman, head of sales at the brokerage Triplemint. However, in the current buyers' market, buyers can get these fees waived, Whitman points out.
Rather badly named, this extra 1 percent tax—paid for by the buyer, not the seller—applies to any purchase over $1 million, even if said purchase is a 600-square-foot apartment. For this reason, it's not uncommon in negotiations for the apartment's price to get knocked just under the $1 million mark to avoid this extra expense.
Most condo and co-op buildings charge move-in and move-out fees, which can range from a few hundred to a couple of thousand dollars each, and board application fees of $500 to $700, our sources estimate.
"When you apply, the board should send the prospective purchaser or the broker a list of what is needed, as well as fees," says Robbie Gendels of mortgage lender National Cooperative Bank (FYI, a Brick sponsor). "On our end with mortgage fees, it's pretty straightforward. But each building is different, so I tell prospective borrowers that they need to make sure they're getting the whole picture."
You’ll pay the same amount whether you’re buying a studio co-op or the penthouse at a glitzy condo tower, but in many cases, the fees are deposits, so you can expect to get the money back if you don’t damage anything. Also, you might pay these fees at the closing or earlier during the process, when you’re submitting the board application.
How to lower your closing costs
1. Save on the broker's fee
Sellers: At 5-6 percent of the sale price, a broker’s commission is by far the biggest closing cost associated with selling an apartment. Aside from trying to negotiating the fee down, consider working with a brokerage that rebates part of its commission to you.
For example, sellers who list their apartment with Prevu (a Brick Underground partner based in NYC) pay a 1.5 percent listing agent commission to Prevu upon closing, a savings of up to 3 percent of the sale price. Participants in the brokerage’s “Smart Seller” program receive a detailed home valuation and listing strategy from one of Prevu’s salaried agents. As a tech-enabled, full-service brokerage, Prevu handles showings, manages negotiations, and everything else you would expect from a traditional real estate broker. Sellers offer a commission to buyers’ brokers to entice them to bring buyers to the apartment, and if a buyer comes without a broker, sellers see additional savings, a unique feature of Prevu versus traditional brokers.
Buyers: To partially or totally offset your closing costs, work with a brokerage that offers a buyer’s rebate on its commission. For example, if you do some legwork yourself by viewing properties without an agent, an agent at Prevu (a Brick Underground partner) will handle pretty much everything else, including advising you on the right price to offer, preparing your offer, negotiating with the seller, and assembling the board package you’ll need to prove your worth to a co-op or condo board. As a participant in Prevu’s “Smart Buyer” program, you’ll pocket a rebate of two-thirds of the commission paid to the buyer’s broker at closing. On a $1 million condo with a 6 percent commission (split 50-50 between the seller’s broker and buyer’s broker—so in this example, 3 percent each), the rebate equals 2 percent of the purchase price, a cool $20,000.
2. Arrange the deal to your advantage
If you’re buying a $2 million condo, there’s not much you can do about paying the mansion tax. But if your purchase is close to the $1 million mark, there may be a way to structure the deal to avoid the extra assessment. For example, you could work out an agreement with the seller to buy some of their furniture or rent the place for a few months, and keep the purchase itself under $1 million. (Of course, consult a legal and/or tax expert on this.)
3. Buy new—in a building with a hefty tax abatement
Assuming the apartment fits within your set budget range—and the savings aren't canceled out by the expense of covering the developer's closing costs, as discussed above—buying into a building with a heavy tax abatement can significantly lower the cost of your monthlies for years to come (more on that here).
4. Buy almost new
A newly built condo is already going to be pricier than your average co-op; factor in the expense of paying the developer’s closing costs, and it can be quite a bit more than a similar apartment that’s only slightly lived in. “A lot of people come in wanting new construction, but if they can wait for the first resale in new construction, that’s a great way to save,” Whitman says.
5. Shop around for a mortgage banker
Some loan officers will compete to get your business by offering to cover various expenses, like the credit check or UCC filing fee, which can save $50 or $100 here and there, Whitman says. (Of course, it’s still probably the smartest move to choose a mortgage based on the best interest rate.)
6. Split the difference
If you’re getting a mortgage and your seller is still paying off their own mortgage, you should ask your attorney if a Purchase Consolidation Extension and Modification Agreement, or "purchase CEMA" makes sense. This little-known mortgage maneuver involves combining the seller’s mortgage with the buyer’s mortgage and then legally modifying the terms to current rates. The result is that, in New York City, you can save on your mortgage tax as much as 1.925 percent of the seller’s or buyer’s mortgage amount, whichever is lower.
For an example, if the seller has an $800,000 balance on their mortgage, and the buyer is getting a $1,000,000 mortgage, then the mortgage tax to be saved by doing a purchase CEMA is approximately $15,400. There are usually $1,000-$2,000 in extra fees to achieve that savings. (Read more here.)
7. Ask for a closing credit
Developers selling new condos are “negotiating like crazy,” attorney Stone says. In most cases, he notes that a sponsor is not willing to negotiate on price, because this would impact the pricing of other units.
They are frequently willing to offer what’s called a closing credit, a sum that is given back to the buyer at closing. It might seem like an odd thing to do, but it allows a seller to keep the purchase price technically the same in order to maintain pricing on other units.
Stone says a typical amount could be a $600,000 closing credit on a $4 million apartment. "This way, the sponsor is still able to say, 'We are getting X per square foot.'" he says.
Calculate your closing costs
For an exhaustive list of what you’ll pay, Abrams Garfinkel and Douglas Elliman both have helpful breakdowns. This handy NYC closing costs calculator from Prevu enables buyers to quickly estimate and compare closing costs for different types of properties, along with how much you can save with a commission rebate.
Where to pay full price
While cut-rate legal services are available, this is one area where it pays to go with someone who’s responsive and knowledgeable about New York City apartment sales, even if they charge $1,000 more. You don’t want an attorney who slows down a deal because they don’t answer their phone, or one who overlooks a key clause in the contract that leaves you unprotected.
“You can totally find an attorney who will do it for $1,500, but I’ve worked with probably 150 attorneys on various transactions that I’ve done in the city,” Whitman says, “and it is the one area that I can guarantee you, you get what you pay for.”
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