All buyers incur transaction costs on their NYC home purchases. This is an unfortunate reality of the NYC real estate market that you cannot avoid. Co-ops generally have lower purchase closing costs than condos or houses. However, it is still difficult to avoid high closing costs on co-op purchases. Below is a brief description of the various closing costs that purchasers may incur when buying NYC real estate.
Transaction Costs where the Purchase Price is $1,000,000 or more:
- “Mansion” Tax. The mansion tax applies in any residential real estate purchase where the purchase price is $1,000,000 or more. The tax is equal to 1% of the purchase price. This tax is somewhat of a misnomer since it has nothing to do with the size of your home. We all know you could buy a 750 square foot one bedroom apartment in today’s market and still have to pay the mansion tax.
- Mortgage Recording Tax. If you are financing your purchase, you will incur the mortgage recording tax. If your loan amount is greater than $500,000, the tax will be equal to 1.925% of the amount of the mortgage. If your loan amount is less than $500,000, the tax will be equal to 1.8% of the amount of the mortgage.
- Title Insurance. Title insurance protects you against financial loss due to defects in the title of your property. Your attorney will strongly suggest that you purchase title insurance on your property, and if you finance the purchase, you will be required to purchase title insurance on your mortgage loan. Title insurance premiums are set by statute, and many title companies have online calculators where you can verify the policy premiums you’ll pay based on your purchase price, but on a $1,000,000 purchase with an $800,000 mortgage loan, you can expect to pay approximately $4,300 for your unit title policy and $915 for your lender’s title policy.
- Lien Search. Since a co-op is not technically real estate, but rather shares in a corporation that owns real estate, you do not have to purchase title insurance. Instead, you have to produce a lien search to make sure that there are no encumbrances on the shares that you are purchasing and to show your lender that you have not pledged your assets to another bank. Lien searches will typically cost you about $250-$350.
- Flip Tax. Most co-op boards have implemented flip taxes in order to share in the revenues reaped by their shareholders and fund the corporation’s reserve funds. These taxes typically run anywhere from 1-3% of the purchase price (depending on the corporation’s bylaws) and, in today’s incredibly seller-friendly market, are usually paid by buyers to the corporation at closing (although this is often a negotiation point).
New Construction or Sponsor Sale Purchase Transaction Costs:
- State and City Transfer Taxes. When you buy a home from a sponsor, whether it be new construction from a developer or an old co-op that had been previously occupied by a rent regulated tenant, you will likely also have to pay the New York State and New York City real property transfer taxes on the sale which equal 1.825% of the purchase price in the aggregate. On re-sales, these taxes are nearly always paid by the seller.
Real Estate Broker Commission Transaction Costs:
- One thing buyers are lucky enough to not have to pay upon closing is a broker commission. With typical broker commissions paid by sellers being 6% of the purchase price, this is a huge expense that, fortunately for buyers, the seller takes care of. Although, while buyers do not come out of pocket to pay the broker commission directly, buyers are still paying for this indirectly (with inflated purchase prices to account for the large commission the seller has to pay, or otherwise). As purchase prices have continued to rise in the past five years, broker commissions have largely remained unchanged, resulting in a boon to real estate brokers to the detriment of buyers and sellers. When you hire Digs, we right this wrong by giving you back up to 67% of our commission, thereby reducing your purchase price by up to 2%.
- Yes, the rebate is legal!
Other Miscellaneous Buyer Transaction Costs:
- Attorney’s Fees. On all purchases, it is very much recommended that you hire an attorney to represent your interests (even if you are one yourself). Residential real estate attorneys typically charge flat fees for their services in the neighborhood of $2,000 to $3,500 for the transaction.
- Home Inspection Fees. Many people buying apartments do not hire a home inspector, although this is an option for any purchaser. When purchasing a house or a brownstone, you will typically want to do a home inspection before you sign the contract. The cost should be between $500 and $1,000.
- Financing Fees. If you are financing your home purchase, expect to see bank attorney fees, appraisal fees, and prepaid interest and documentation preparation fees. Often, you can get your bank to waive certain financing fees.
- Move-in/out Fees. If you’re buying an apartment, your building will likely require you pay move-in fees (some of which are refundable) anywhere from $250-$1000.
- Building Management Company Fees. If your building has a management company, you will likely see closing fees from them as well, ranging anywhere from $500-$1,500.