It is no secret that apartments in NYC are expensive. In 2018 the average price of a condominium unit in NYC was $2,880,000. But what many purchasers and sellers fail to consider are the additional condominium closing costs in NYC that are involved in every real estate transaction beyond the purchase price.
Various NYC Condo Closing Costs
This article will discuss the closing costs of condominium purchasers in New York. For Seller’s closing costs click here. Purchasers closing costs for a condominium unit in NYC typically range from 2% to 4%. The largest closing costs in NYC for purchasers are typically the Mansion Tax, the Mortgage Recording Tax and Title Insurance premiums and fees. In New York City purchasers will also need to retain an attorney, whose fees can generally range anywhere from $2,500-$4,000. Most condo buildings also charge application, closing and move in fees.
The Mansion Tax is a real estate transfer tax that is paid by the purchaser in property transactions with purchase prices equal to or larger than $1,000,000. The rates start at 1% of the purchase price for properties with purchase prices between $1,000,000 to $2,000,000, increasing all the way up to 3.9% for purchase prices of $25,000,000 or greater. For example, if the purchase price of a unit is $2,500,000, a 1.25% Mansion Tax would be applied, meaning an additional closing cost of $31,250 will be due by the purchaser at closing.
Mortgage Recording Tax
If purchaser is taking out a mortgage then the transaction will be subject to Mortgage Recording Tax in the amount of 1.8% on mortgage amounts under $500,000, and 1.925% on mortgage amounts above $500,000. This tax is only based on the mortgage amount, not on the full purchase price. For example, if you were to buy an apartment for $2,000,000, and your mortgage is covering 80%, then you would be paying 1.925% of the $1,600,000 loan amount, equaling $30,800 for the Mortgage Recording Tax.
Title Insurance protects purchasers and lenders against any future claims made against the title of the property for issues that were undiscovered and not removed at the time of the purchase when the title search was conducted by the insurance company. Such future claims may include minor issues like unpaid property taxes or liens against the unit, or major issues like the seller knowingly selling a purchaser a property the Seller does not actually own. Although it is unlikely that the insured will have to call upon the insurance company for coverage, it is still worthwhile to have title insurance because the value you stand to lose is much greater than the one time premium fee. Further, if a purchaser is taking out a mortgage their lender will likely require them to acquire title insurance for the property. The cost of title insurance varies depending on the provider.
Purchasers will also have smaller additional closing costs as well in order to close a transaction. Those costs may include title search fees, mortgage fees, appraisals, surveys, move-in deposits, application fees, and recording expenses. Many of these additional fees are negotiable, so it is never a bad idea to ask.
In addition to mortgage tax condo buyers in New York will have other loan related expenses which include application fees, appraisal fee, bank attorney closing fee, lender’s title policy, etc. We always advise our clients to obtain a list of all the closing costs in writing from their mortgage brokers prior to submitting a loan application.
Most condominiums and management companies will impose fees on buyers such as application fee, credit report fee, closing fee, etc. Some condominiums may charge a “flip tax”. Flip tax is not a real tax and is not collected by the government, but is a fee charged by the condominium. Usually this fee is a percentage of the purchase price and can sometimes be a significant amount. We always recommend our clients to get the list of all condo fees from their real estate agent prior to submitting an offer on the apartment.
Real Estate Attorney Fees
The rates for residential real estate attorneys vary and are based on the attorney’s experience, geographical area, services provided, etc. Most real estate attorneys in NYC charge a flat fee for residential condominium closings. If your attorney is charging you an hourly rate for a residential condo closing make sure to obtain an estimate from them in advance. A lot of lawyers focus on specific areas of law. Before retaining an attorney always ask them about their experience and whether they have closed similar deals in the past.
Ask your real estate lawyer about the due diligence they will do, whether they will read the board minutes, review the offering plan, discuss the building’s financials with you, etc. At our law firm we always provide our clients with a due diligence report which summarizes all of our findings. It is also recommended to discuss all of the fees prior to retaining a lawyer.