By James McGrath
It’s time – you’ve decided to sell your NYC apartment! If you’ve owned your apartment for a few years, you’re probably planning on realizing a nice profit on your sale. But did you take closing costs into account? Seller closing costs in NYC can be very high, potentially wiping out all your profit (or more!) so it’s important to know which costs you can avoid and which you can’t before listing your apartment.
Table of Contents:
What Are Seller Closing Costs?
Real Estate Broker Commissions – The Biggest Seller Closing Cost
How Can I Lower My Closing Costs When Selling?
A Summary of NYC Seller Closing Costs
In case it’s been a while since you purchased your apartment, “closing” is the big day - the day all the hard work pays off (literally and figuratively) and you transfer ownership to the buyer.
“Seller closing costs” are all the taxes and fees that you need to pay to execute your transaction. The higher they are, the lower your net sales price will be. There are a few big expenses that will drive the majority of your total bill. Some are negotiable, others are not.
We encourage all sellers to read this post to thoroughly understand the various seller closing costs that may apply to their transaction. If you would like to jump straight to an estimate for your transaction, you can use Yoreevo’s closing cost calculator.
By far the largest seller closing cost you’re looking at is real estate broker commissions. As a seller, you are typically responsible for paying both your broker (the "listing broker") as well as a buyer’s broker.
Your broker should take care of everything to get your property sold. They’ll have a pre-listing consultation with you to explain the process and valuation, take professional photos, host open houses, negotiate on your behalf and get from the accepted offer to the closing table. It’s a lot of work but it’s also a lot of money!
Yoreevo has gathered information on NYC real estate broker commissions on about two-thirds of transactions, sellers are paying a 6% commission . The vast majority of the remaining one-third are paying 5%.
Half of that commission goes to your broker and the other half to the buyer’s broker.
How does that 5-6% compare to other countries?
That chart is comparing commissions all over the globe in 2002 to those in 2015. You may notice most of those yellow dots (2015) are substantially lower than the blue dots (2002) with one exception - the U.S. Nationally, commission rates have barely budged and If we had to guess, we’d say NYC commissions haven’t budged at all.
If you’d like to join the rest of the world and pay substantially lower broker commissions, contact Yoreevo and we’ll explain how we’ll knock that 5-6% down to 2-3.5%. This will greatly reduce your total seller closing costs.
What if the buyer doesn’t have a broker? Too bad. Most listing brokers will structure their listing agreements so you pay the same commission regardless. Presumably the argument is they should get paid for “finding a buyer.”
You can also reduce your seller closing costs by listing the property yourself - commonly called a “for sale by owner” or FSBO. FSBOs can be an attractive way to sell your apartment but there are pros and cons which we will explore in a future post.
Unlike real estate broker commissions, there’s no negotiating or alternative to transfer taxes. Both New York City and New York State charge transfer taxes on virtually every real estate transaction. The New York City transfer tax is 1.0% if your sale price is under $500,000 or 1.425% if it’s above. In addition, New York State charges 0.4% for properties under $3,000,000 and 0.65% for those above.
Yoreevo has a transfer tax guide for more information but in all likelihood, you’re going to be stuck paying this seller closing cost no matter what.
Since you used an attorney to buy, you’re probably pretty familiar with this seller closing cost. When you’re selling, your attorney will provide the first draft of the contract to the buyer’s attorney. He or she will also go through a few rounds of contract revisions, all the while looking out for your best interest.
A seller’s attorney will work on a per transaction basis just like when you bought. Most real estate attorneys will be $1,500 to $3,000 but there are certainly options for more or less.
Whether you are subject to a flip tax or not will depend on your building. Flip taxes are significantly more common seller closing cost in co-ops although they are becoming more common in condos as well.
Even if your building didn’t have a flip tax when you bought, make sure to check before you sell, especially if you don’t pay attention to every building communication. We have been seeing more and more votes to implement flip taxes recently.
While each building has its own policy, the most common structure is a simple percentage of the sale price. Yoreevo conducted a sample and found the most common flip tax is 2% but we have seen up to 5%. We’ve also seen a flip tax based on how long you’ve owned your apartment or the profit you’re making.
Check out our flip tax guide if you’d like to dive into the weeds.
Unfortunately most of these seller closing costs are not negotiable. New York City and New York State aren't going to cut you a break on your transfer taxes. Your building isn't going to waive its flip tax because you were such a great neighbor. Your attorney is already getting the smallest check so he or she is not likely to cut their fee nor would it move the needle.
The good news is the largest seller closing cost - real estate broker commissions - is very negotiable. If you go to a traditional real estate broker, they'll start at 6% and if you play your cards right, you might be able to get them down to 5%. Still not exactly cheap.
However by listing with Yoreevo, you'll never pay a total commission more than 4% and it can be as low as 2%. We help significantly reduce your seller closing costs while still getting your listing the widest distribution possible. Please contact us for more information.
Note: This article is meant to be informational and should not be used as tax or legal advice. If you have any questions about your particular transaction or situation, please contact your accountant or attorney.