Closing Costs NYC: What You Should Expect & How to Save Big
Here’s a home buying expense that you’ve been ignoring: closing costs in NYC. Whether you’re buying or selling, closing costs can run up your bill and catch you off guard if you’re unprepared. In this article I’ll break down what exactly what closing costs are, what you can expect to pay, and how you can strategize to minimizes these expenses.
What Are Closing Costs?
Closing costs - or transaction costs - are all of the costs associated with buying or selling a home outside of the cost of the home itself.
Who pays the closing costs in NY?
Buyers and sellers both pay closing costs in NY. Certain costs are paid by the buyer, certain costs are paid by the seller. Who pays certain closing costs are decided as part of the purchase negotiation.
How much are closing costs for a buyer in NYC?
It depends on the purchase price and the type of ownership structure of the building, but for a typical purchase in NYC, buyers should expect to pay between 1% - 4% of the purchase price in closing costs.
What are the biggest closing costs usually paid by buyers?
The Mansion Tax and the Mortgage Recording Tax will make up the bulk of a buyer’s NYC closing costs. The Mansion tax kicks in at $1 Million and the Mortgage Recording Tax applies to all financed purchases of all other types of properties. The Flip Tax may be paid by the buyer and can also be a large chunk of your nyc closing costs.
Breakdown: Closing Costs NYC
The Mansion Tax
Triggering at the $1 million purchase price mark, the mansion tax is NYC's way of adding an extra layer of cost to high-end property acquisitions. Starting at 1% of your purchase price, this tax escalates up to 3.9% for properties over $25 million.
Buying that $5,000,000 apartment? Prepare to budget an extra $112,500 for the mansion tax.
Given that the average cost of a 1 bedroom condo in Manhattan is above $1 million, many argue that the mansion tax should be reassessed to reflect the higher cost of property. However, it has not been updated for inflation since it was established in 1989.
Mortgage Recording Tax
In NYC, purchasing real estate brings an obligatory encounter with the mortgage recording tax, a fee levied by both New York State and New York City when a mortgage is recorded. For loans exceeding $500,000 on individual condo units, buyers should expect to pay 1.925% of their purchase price in mortgage recording tax. This is a critical component of the average New York condo closing costs.
For instance, if you're buying a $5,000,000 apartment with a 20% down payment, you're looking at a mortgage recording tax of approximately $77,000. This fee contributes substantially to your nyc closing costs.
Transfer Tax
Both the city and the state impose a transfer tax on property sales. Rates vary based on purchase price.
For properties under $500,000, the city’s rate is 1%, and it increases to 1.425% for higher values.
The state's rate is 0.4% for purchases below $3 Million and .65% for purchase above 3 Million.
Accordingly, totals vary from 1.4% - 2.075%. Interestingly, while sellers typically bear this cost, buyers of new development properties often find themselves responsible by default, which can add significantly to the buyer closing costs in NYC. If you’re buying a $5,000,000 apartment in a new development, by default you’d be on the hook for $103,750.
Flip Tax
Flip taxes are only relevant in cooperative sales. Rather than being paid to the state or the city, they are paid directly to the cooperative. The coop probably suggests which party - buyer or seller - pays the flip tax. However, flip tax payments are regularly a part of purchase negotiations and can really be paid by either party.
Brokers Fees
The broker fees are the amount paid to the real estate brokerages involved in the transaction. Broker fees are traditionally paid by the seller (meaning they’ll cost buyers nothing) and are 5 % - 6% of the sale price.
What percentage do most realtors take?
The standard broker fee in NYC is 3%, or 6% total when you account for both agent’s involved. This is the amount paid to the real estate brokerage your real estate agent works under. A buyer’s agent will be take home some smaller percentage of that fee as their payment for their services.
Do buyers pay realtor fees in NY?
No. Buyers traditionally do not pay their real estate agents. Rather, the buyer’s agent broker fee comes out of the seller’s proceeds from the sale. While there are some exceptions to this rule, especially in light of the recent NAR settlement, the vast majority of the time, buyer’s agents are free to the buyers themselves.
Attorney Fees
Regardless of which side of the transaction you’re on, you should have a real estate attorney. Real estate attorney fees vary between $3,000 - $5,000 depending on the purchase price of the property.
An often overlooked expense in new developments is the developer's attorney fees, usually expected to be covered by the buyer. This could tack on an additional $5,000 to your closing tab, impacting the total buyer closing costs in NYC.
Additional Small Expenses and Fees
There are a myriad of small expenses and fees associated with the buying and selling of property in New York City. Loan application fees, appraisal fees, move in fees, title search fees, credit check fees, bank attorney fees etc each add around $100 - $1000 in closing costs. Of course, small amounts add up, but even all together, these fees pale in comparison to the mortgage recording, mansion, transfer and flip taxes.
Strategy: Minimize Your Closing Costs NYC
Spend Less than $1 Million: Stay below the $1 million threshold if possible, to avoid this aspect of buyer closing costs in NYC. You can also negotiate the purchase price down by compensating with additional payments for non-real-estate assets (such as furniture) to mitigate the impact on your total NYC closing costs. However, if you end up buying an apartment for almost $1 million, the IRS is liable to heavily scrutinize your purchase and you may end up paying the tax anyway!
Buy a New Property: The sponsors of new developments often absorb a substantial portion of the New York City closing costs. Getting closing costs covered by resellers is less common, but you can always try to negotiate with a seller to see what expenses they’ll cover.
Pay All Cash: You won’t owe a Mortgage Recording Tax if you don’t have a mortgage.
Buy a Co-Op: The mortgage recording tax does not apply to purchases of cooperative units due to the collective nature of property’s ownership.
Explore Getting a “CEMA”: A CEMA, or a Consolidation, Extension, & Modification Agreement is an agreement between two lenders to consolidate two loans into one new loan. The new loan won’t be subject to mortgage record taxes since the previous purchaser already paid them.
Your next strategic move should be to consult with a real estate expert to explore your options for reducing your tax obligations and overall closing costs in NYC.
The Financial Benefits of Hiring a real estate expert
If you want to approach the purchase of your property in the most financially savvy way possible, a Real Estate Agent can make all the difference. Here’s how:
View Properties More Aligned With Your Goals: Good real estate agents look past just the purchase price to find properties whose all in costs will align with your financial goals.
Knowledgeable Negotiations: Real estate agents know what terms to include and what concessions to ask for when an offer is made. If you don’t ask for discounts, you won’t get them. Less than stellar agents often forget to include things like the state and city taxes or the sponsor’s attorney fees being covered.
Take Advantage of Clever Options: Good real estate agents have a solid grasp of all the aspects of a property transaction and will help you explore all of your options when it comes to minimizing your tax burden.
Contact me today for a free consultation where we can explore if my Real Estate services are a good fit for you. And if you want to continue exploring options on your own, take advantage of my free resource, the Ultimate Buyer’s Guide, which I personally built to help you navigate the complexities of NYC real estate.
