Who Pays Closing Costs in NY: Sellers or Buyers?

Real estate transactions in New York involve various financial obligations beyond the property’s purchase price, collectively known as closing costs. These expenses are incurred by both buyers and sellers to complete the transfer of ownership. Understanding these costs is important for anyone engaging in a property transaction within New York State. The exact amounts and types of fees can vary significantly based on the transaction’s specifics.

Buyer’s Closing Costs in New York

Buyers in New York encounter a range of closing costs, some substantial and tax-related. One significant expense is the Mansion Tax, a state-imposed tax applicable to residential property purchases of $1 million or more. This tax operates on a tiered system, with rates starting at 1% for properties between $1 million and $1,999,999, and incrementally increasing up to 3.9% for properties valued at $25 million or more.

The Mortgage Recording Tax is another substantial cost for buyers who finance their purchase. This tax is imposed on the privilege of recording a mortgage on real property. In New York City, the buyer’s portion of this tax is 1.8% for mortgage amounts under $500,000 and 1.925% for loans of $500,000 or more. Outside of New York City, the state tax rate is 0.5%, with additional local taxes varying by county. Co-operative apartments are exempt from this tax because they are classified as personal property, not real property.

Buyers are also responsible for various fees related to obtaining a mortgage and ensuring clear title. Title insurance is a required expense, comprising a Lender’s Policy, which protects the mortgage lender’s interest, and an Owner’s Policy, which safeguards the buyer’s equity against future claims or defects in title. The cost of these policies is based on the purchase price and the loan amount.

Additional fees include those charged by the buyer’s legal counsel, ranging from $2,000 to $5,000 for residential transactions. An appraisal fee is paid to a licensed appraiser to determine the property’s market value, a requirement for most lenders, often costing between $400 and $600. Loan origination fees, charged by the lender for processing the mortgage application, range from 0.5% to 1.5% of the loan amount. Credit report fees, typically under $100, cover the cost of obtaining the buyer’s credit history.

Buyers may incur survey fees to verify property lines, ranging from $500 to $1,000, and home inspection fees, $400 to $800, for a professional assessment of the property’s condition. Various bank fees, such as processing, underwriting, and document preparation fees, are also part of the closing costs. Buyers establish an escrow account, requiring an initial deposit to cover future property taxes and homeowner’s insurance premiums. Recording fees, often between $100 and $300, are paid to the county clerk to register the deed and mortgage documents.

Seller’s Closing Costs in New York

Sellers in New York face their own set of closing costs, with real estate broker commissions representing the largest expense. The average total commission in New York is approximately 5.36% of the home’s sale price. This amount is split between the listing agent and the buyer’s agent, and it is paid by the seller from the sale proceeds.

New York State imposes a Real Estate Transfer Tax on the conveyance of real property. This tax is calculated at a rate of $2.00 for each $500 of consideration, which translates to 0.4% of the sale price. For properties located within New York City, an additional tax, the New York City Real Property Transfer Tax (RPTT), is levied. For residential properties, the RPTT rate is 1% for sales up to $500,000 and 1.425% for sales exceeding $500,000. These municipal transfer taxes apply in addition to the state transfer tax.

Seller’s legal counsel fees are another common closing cost, with attorneys typically charging between $2,000 and $5,000 for their services in a residential transaction. If the seller has an existing mortgage on the property, the outstanding principal balance, any accrued interest, and potential prepayment penalties must be paid off at closing. A small recording fee is also incurred to record the satisfaction of the mortgage, removing the lien from the property’s title.

For co-operative and some condominium properties, specific building-related fees are common. A “flip tax,” despite its name, is a transfer fee imposed by the co-op or condo building, not a government tax. This fee, which can range from 1% to 3.5% of the sale price or profit, is paid by the seller and contributes to the building’s financial reserves. Other building-specific charges include move-out fees, which are non-refundable administrative fees for vacating the unit, and managing agent fees, which cover the building management’s administrative work related to the sale.

Factors Influencing Closing Cost Responsibility in New York

The allocation and types of closing costs in New York can be influenced by several factors beyond the standard buyer and seller responsibilities. The specific type of property being transacted plays a role. Co-operative apartments, for example, have unique cost implications. They impose fees such as “flip taxes” and specific board application or transfer fees, which can add to the seller’s expenses.

Geographic location within New York State also dictates certain costs. Properties located in New York City are subject to additional municipal taxes and higher rates for the Mortgage Recording Tax compared to other parts of the state.

The contractual agreement between the buyer and seller can modify the distribution of closing costs. Through negotiation, parties may agree to seller concessions, where the seller contributes funds towards the buyer’s closing costs, or to split certain fees that are borne by one party. This flexibility is a component of real estate contracts.

The method of purchase also impacts costs; a cash purchase eliminates all loan-related fees for the buyer, such as loan origination fees, appraisal fees, credit report fees, and the Mortgage Recording Tax. Conversely, a financed purchase will incur all these loan-specific expenses.