OMG, total snooze fest topic! But ok, I get it. You want to educate yourself and prepare for what lies ahead. No harm in that. I’m going to simply cover the big ticket items so that you know where the pitfalls are, and how to roughly calculate your net profit post-closing because that’s what you’re looking to do, right? It’s all about money, honey. I get it.
Closing costs are different for buyers and sellers.
The other determining factor is whether the property is a co-op or NOT. If you’re not transferring a co-op, then you’re transferring a house, townhouse, or condo. They are, what we call “in the biz” real property and therefore in the same category, for this purpose.
Ok, straight to the point — if you don’t recognize one of the fees below, you need to figure out if that closing cost pertains to you. Here are the biggies:
- Broker Fee
- City & State Transfer Taxes
- Flip Tax
- Mansion Tax
- Mortgage Recording Tax
The good news is that not all of these will be absorbed by you. The bad news is that this isn’t everything. There are always miscellaneous bank fees, building fees, processing fees and in some cases more (and for sure higher) taxes if you’re transferring a multi-million dollar property…which should only be represented by the shrewdest broker who uses her kindness as a weapon. Please don’t hire anyone who high kicks….unless she is a former Broadway dancer and calculates debt to income ratios in her sleep. Eh hem!! (I still got it.) Having said that, the above list should be your focus (focus, Claudine, FOCUS) as they are the big ticket items.
BUYERS
- NO BROKER FEE! woohoo! Our services are free to you! You get all my knowledge and expertise for FREE! Brokers get paid by the seller at the closing table and their commission is set at the time the apartment goes live / on the market. (See my article The Vig - what’s the commission and who pays it?)
- And in almost all cases, NO CITY & STATE TRANSFER TAX! Unless you are buying a sponsor unit — womp womp. (See my article on Sponsor Units to learn how to work around this.) As a buyer, that’s a saving of almost 8% already! But wait, there’s more!
- NO BUILDING FLIP TAX which could be anywhere from 1-3%! (And just like that, I have an entire article on FLIP TAX: What’s it for? Who pays it? And, why it’s a good thing.)
Starting to see why buying is oh, so good?
- If your purchase is over $1M, then you’re on the hook for the MANSION TAX, starting at 1%. That’s across the board despite the kind of property you buy…even though $1,000,000 will not, I repeat, will not buy you a mansion in NYC.
Two more brackets: Are you buying a co-op or not? And are you financing, or not?
If you’re buying a co-op, your closing costs are going to be at their lowest regardless of whether you’re financing. “Wait, what? Did you say something amazing about co-ops?” YES. Their closing costs are practically nothing…when you buy. HEY FIRST TIME HOMEBUYERS! Whatchya waiting for?!
CONDO BUYERS
If you’re buying a condo, then you’ll also have to pay the MORTGAGE RECORDING TAX only if you’re obtaining a mortgage. This is almost 2% of the loan amount, not the purchase price. But still, that’s thousands of dollars! Ouch.
SELLERS
As a seller, the cost of doing business (selling) is definitely higher than buying. But it’s still an advantage to own because what you gain in real estate appreciation value far out weighs the cost when you go to sell.
Think of it like the toll on the George Washington Bridge: It’s $0 to leave NYC and go to New Jersey. But when you enter NYC, you’ll get slapped with an almost $20 toll….oh, but you’ll leave with so much New York in your soul. Well worth it.
For all you economists out there, the average property value appreciation in Manhattan is a gain of approximately 4-7% year over year. So, buying, selling, buying and selling again to leverage your sales into bigger and bigger property and ultimately mega profit, makes financial sense. If for any reason this doesn’t make financial sense to you, let’s tawk ova a cup-a-cawfee.
- BROKER FEES ~6%. In NYC, this is to be expected. If you try to negotiate this, you are doing yourself a huge disservice. Or perhaps you’re just being cheap. Trust me on this one, you get what you pay for. (I’m sure I wrote a blog about it).
- CITY & STATE TRANSFER FEES. You can’t get away from these taxes, sorry. Figure. 1.84% of the purchase price broken down as follows:
- 1.425% to the city
- another 0.4% for the state. That’s for property $1-3M.
- FLIP TAX. Remember, I have an entire blog post about this pesky tax. This is a building implemented tax to fortify the building's financial health. This tax is like Glenda the Good Witch - a Tax that’s good. It’s good for the building and its shareholders. You’re looking at anywhere from ~1-3% of the sales price.
Not all co-ops have them, but most do. If you go by memory from when you purchased, you may think that you don’t have a flip tax because you probably overlooked it given that it’s typically the seller’s responsibility. But check your transfer package including house rules to see whether or not your building has a flip tax, how much it is and who pays it, because in higher end buildings like on Fifth Ave, Park Ave, Sutton Place and Beekman Place, the buyer often absorbs these costs. Nothing’s worse than getting slapped with a bill you didn’t expect. Psychologically, it hurts more than just getting slapped.
In every circumstance, bank fees will be less in a co-op than a condo. Another score for the beloved co-op. Yay! The co-op’s closing costs are like the Henry Hudson Bridge - nominal compared to the condo which is more like the GWB. (Why do we ever go to Jersey anyways??)
And as far as attorneys go, most big firms will start around $3,500. But from what I know about real estate law, you don’t need to spend that much. For my entire career I’ve been cultivating relationships…I gotta guy (or two) for approximately $2,000. I’m taking you down the back roads and over the Brooklyn Bridge so that you don’t have to pay a toll. I gotchu.
Still awake? Slide into my DM’s and I’ll send you a specific worksheet for you to calculate your own closing costs in detail; let's get crazy tonight.
