Why Are Closing Costs Higher for Condos Than Co-ops in NYC?
Buyer closing costs are highest for condos in NYC because of title insurance and the mortgage recording tax. Seller closing costs are highest for co-ops because most co-op buildings charge sellers a flip tax.
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What is title insurance?
Title insurance protects a buyer from any defects or future claims against the title which were unknown at the time of purchase. This means that you’ll be protected against financial loss if a former owner claims that he or she never sold the property to the seller of your property, which means the seller of the property didn’t have a right to sell it to you.
Title insurance is generally not applicable to co-ops because co-op apartments are not considered to be ‘real property.’ Buying a co-op means that you are buying shares in a corporation that owns the apartment building. Each co-op apartment owner receives a proprietary lease which associates the shares purchased with your specific apartment.
Title insurance is a bank requirement if you are financing your condo purchase. The title insurance policy comes in two parts: a lender’s policy and an owner’s policy. The lender’s policy covers the principal loan amount and decreases as you pay down the mortgage. The owner’s policy protects you against the full purchase price and does not decrease over time. If you are purchasing a co-op apartment, your real estate attorney may conduct a lien search as part of his or her apartment due diligence.
If you are buying a condo in NYC, you will also have the option to purchase a ‘market value rider’ for your title insurance policy. The market value rider pegs the amount of your insurance coverage to the value of your apartment as it increases over time.
How much is title insurance?
Title insurance is around 0.4% to 0.5% of the purchase price. It is the third largest closing cost for condo buyers in NYC behind the mortgage recording tax and the mansion tax.
Title insurance is comprised of a fixed fee component and variable fee element that adjusts based on the purchase price. Prior to closing you will receive a ‘good faith estimate’ from the title company which breaks down all elements of the title insurance bill.
What is the mortgage recording tax?
The NYC & NYS Mortgage Recording Tax of 2.05% to 2.175% is the largest closing cost for condo buyers in NYC. Buyers of co-ops in NYC do not have to pay the mortgage recording tax because the tax is imposed on “real property” and co-ops are not ‘real property.’
All mortgages with initial loan balances less than $500,000:
- 2.05% of the initial mortgage principal (includes a 1% New York City tax)
Mortgages of one to three family houses and individual residential condo units with initial loan balances of $500,000 or more
- 2.175% of the initial mortgage principal (includes a 1.125% New York City tax)
All other mortgages with initial loan balances of $500,000 or more
- 2.8% of the initial mortgage principal (includes a 1.75% New York City tax)
The mortgage recording tax generated $1.889 billion in revenue in 2016 according to the NYC Department of Finance. The New York City component of the mortgage recording tax was originally imposed in 1971 and subsequently increased in 1990 to its current levels.
What is the flip tax?
A flip tax is an additional seller closing cost charged directly by the co-op or condo building on every resale transaction. Flip taxes are most commonly seen with co-ops in NYC, however you may find an occasional condo which charges a seller flip tax (or a buyer capital contribution closing cost). Therefore, seller closing costs are typically higher for co-ops compared to condos because there’s a high likelihood that the co-op will charge a flip tax.
The most common co-op flip tax in NYC is between 1–2% of the sale price. The amount of the flip tax varies by building, and each building’s flip tax is documented in its proprietary lease and/or building bylaws. Flip taxes can be a percentage of the sale price or profits, a per share amount, a flat fee or a hybrid formula. Although rare, some condos also charge a flip tax on sales.
Buyer Closing Costs in NYC
Buyer closing costs in New York City are between 1.5% to 5%. You can reduce your closing costs by $20k or more by requesting a Hauseit Buyer Rebate.
Closing costs are higher for condos than co-ops, and closing costs are always greater for ‘new construction’ (sponsor sales). In most cases, you will also pay higher closing costs if you are financing vs. making an all-cash transaction.
Buyer Closing Costs in NYC Include:
- 2.05% to 2.175% — Mortgage Recording Tax (Condo only)
- 1% — NYC Mansion Tax (on purchases at/above $1m)
- 0.4% to 0.5% — Title Insurance (Condo only)
- $3k — Buyer Attorney Fees
- $3k — Miscellaneous Fees
Seller Closing Costs in NYC
Seller closing costs in New York City are between 8% to 10%. Fortunately, the largest closing cost (6% broker commission) is the one which you can most easily reduce or fully eliminate. You can save up to 6% by listing Agent-Assisted FSBO through Hauseit. Don’t have time to list For Sale by Owner? Consider a Traditional Full Service Listing for Just 1% Commission.
Seller Closing Costs in NYC Include:
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Disclosure: Hauseit (https://www.hauseit.com) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).