As we have all read in the news, prices of Brooklyn’s real estate are soaring. From Bushwick to BedStuy, property sales are setting all-time record highs. This legal tip will examine how these prices will influence your client’s closing costs whether sellers or buyers in New York City.
Let us first examine the seller’s side of the transactions. Among other things the seller generally pays for realtor’s commission and transfer taxes. Realtors generally charge anywhere between four to six percent of the purchase price. While a seller might be tempted to go with a lower end of the spectrum realtor, remember your job is to instill into them that “you get what you pay for.” This past summer I assisted a client in selling her Bedford-Stuyvesant multifamily brownstone. The seller had hired one of the best realtors in the area. The brownstone sold for way above asking price and over $500,000 more than a similar brownstone which sold several months earlier on the same block. While the seller might have paid one or two percent more to the realtor, the price increase alone was well worth it. The other major fee that is incurred by a seller during a real estate transaction is New York City and New York State transfer taxes. New York City transfer taxes depend on a type of property you are selling but generally for residential properties are 1% if the sale price of the property is $500,000 or less and 1.425% if the sale price is $500,000 or more. New York State charges the seller $4 for every $1,000 of the sale price. Additionally, a seller might incur a Capital Gain tax at the conclusion of the tax year but that discussion is better left to a C.P.A.
Generally, a purchaser will incur higher costs than a seller during a real estate transaction. If a purchase requires a mortgage, most counties in New York State will charge a mortgage recording tax. In New York City, the mortgage recording tax is based on the mortgage amount. If the mortgage amount is less than $500,000 on a residential property, the tax is 1.8% of the mortgage, if the mortgage is $500,000 or more then the mortgage recording tax is 1.925%. Additionally, if the purchase price is $1,000,000 or more, the buyer will pay New York State’s mansion tax, which is 1% of the entire purchase price. The other big expense that is incurred by the purchaser is title insurance fees and mortgage insurance title fees. Both fees are controlled by the purchase price of the property.
There are other bank and title fees which may be influenced by an increase in the sale price, but generally the ones previously listed have the biggest impact to be considered.
In conclusion, an increase in Brooklyn’s real estate prices also have a direct correlation to the increase of the closing cost to both seller and purchaser.