What Are the Typical Closing Costs for Buyers in NYC?
Closing costs are fees charged by lenders, attorneys, title insurance companies, and other third parties at the conclusion of a real estate transaction. These are typically out-of-pocket fees, meaning buyers aren’t able to roll them into the mortgage as a way to finance them.
In New York City, closing costs for buyers vary significantly depending on the purchase price and the type of property (e.g., co-op vs. condo).
Diving in, here’s a side-by-side comparison of buyer closing costs in a co-op vs. condo scenario:
Let’s take a closer look at the fees listed above, which are among the biggest closing costs for buyers in NYC.
Mansion Tax
The mansion tax is a property transfer fee levied on co-ops, condos, and all other homes sold in NYC for $1 million or more. So no, you don’t have to buy a sprawling estate to be subject to this tax! Even a modest 1-bedroom condo in a popular neighborhood like Williamsburg can easily go for $1 million.
Mansion tax rates range from 1% to 3.9% of the total purchase price. As of 2022, the rates are as follows:
- $1–2 million = 1.00%
- $2–3 million = 1.25%
- $3–5 million = 1.50%
- $5–10 million = 2.25%
- $10–15 million = 3.25%
- $15–20 million = 3.50%
- $20–25 million = 3.75%
- $25+ million = 3.90%
For example, a $2 million co-op pays a mansion tax of $20,000 (2,000,000 x 1%) and a $3.5 million condo pays a tax of $52,500 (3,500,000 x 1.5%).
On average, buyers should set aside 1% to 1.825% of the purchase price to cover the mansion tax, though this number may be higher when targeting homes valued above $5 million.
Mortgage Recording Fee
Since 1906, New York State has been imposing a tax on the “privilege of recording a mortgage on real property located within the state.” (But we’ll wager that few buyers will see this fee as a privilege!)
How can buyers avoid paying a mortgage recording tax in NYC? Well, they can make an all-cash offer on a home or buy a co-op unit, as co-ops offer a stock certificate and proprietary lease rather than a deed. Because of this, they’re considered “personal property” and not “real property.”
Other than that, a mortgage recording fee applies to all mortgage-backed purchases in the state of New York no matter the sale price, with additional fees imposed on counties that form part of the state’s Metropolitan Commuter Transportation District (MCTD). These include the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester.
The mortgage recording fee on a property valued at $500,000 or less is 2.05% while the fee on properties at or above $500,001 is 2.175%. In each case, the lender pays 0.25% of the tax, leaving the borrower to pay the rest.
On a $1 million condo or townhome in NYC, for example, buyers can expect to pay a mortgage recording tax of $21,750 ($1 million x 2.175%).
Title Insurance
Title insurance protects the buyer and lender from any third-party claims on the property or losses that may result from problems with the title. For example, if there are outstanding liens or judgments against the property, the title insurance company may cover losses up to the policy limit.
In NYC, title insurance is usually paid by the buyer and costs between 0.4% to 0.5% of the purchase price. This means that on a $1 million condo, the buyer would pay $4,000 to $5,000 for title insurance.
Co-ops are once again exempt from paying this fee as title transfers apply to real property only.
Attorney’s Fee
Although buyers are not required to hire a real estate attorney in NYC, doing so has become a local custom, especially given the complexities of real estate transactions in the city.
An experienced attorney should review the sales contract carefully, search for liens against the property, and perform other duties at a granular level. This includes finding out how many units in the building are in arrears or have fallen behind on common charges.
Closing costs will vary depending on the specifics of the transaction, but buyers in NYC should budget between $1,500 and $3,000 in attorneys’ fees.
The Bottom Line
What buyers in New York City should budget for their closing costs boils down to the type of property they wish to purchase and whether the home is worth less than $1 million.
That said, a good rule of thumb is to budget around 3% to 4% of the purchase price when browsing all property types in NYC. That way, buyers can expect fewer surprises when it comes time to close.
Whether you’re looking to purchase a condo, townhome, or co-op in NYC, understanding closing costs is crucial to the home buying process, and knowing which of the above-mentioned fees might be negotiable is equally important.
At Elegran, our real estate advisors are dedicated to assisting you along the entire journey, working tirelessly toward a successful closing day.
Reach out to an advisor today for more information.
