Who Pays Closing Costs in NYS?
The price you have listed for your New York State home will not be the number that ends up in your bank account. Between taxes and closing costs, the final profit from the sale of your home may be significantly lower than you expected.
Closing costs often catch first-time home sellers off-guard. They are surprising because of how expensive they often turn out to be.
Those closing costs should be important points of negotiation between the buyer and the seller. Continuing with the rest of this article, you can learn more about them and how they manage them during real estate transactions.
Defining Closing Costs
Before we discuss closing costs and who should pay them, let’s first define what they are.
Simply put, closing costs are the fees that must get paid before a real estate transaction can finalize. These costs are quite varied. They typically include taxes, insurance, professional fees, and other costs. Many of the closing costs involved in real estate transactions are also necessary to facilitate the sale, so the parties involved must settle them.
Closing costs may also vary a bit from one state to another. Even if you have experience selling a home, the experience of moving your New York State property will likely be different.
Take all of that into consideration before you decide if you want to sell your New York State home the conventional way.
Who Pays Closing Costs in a New York State Real Estate Transaction?
Who will pay the closing costs for your sale? In most cases, the buyers and sellers will jointly cover the closing costs.
A buyer must pay the fees imposed by their lender and charges set by other agencies. In addition, if they hire someone to help them negotiate the purchase, professional fees will also be in their closing costs.
Meanwhile, the seller will take care of the property’s title fees. They will also deal with professional fees and taxes.
We will get more into the closing costs that sellers typically cover later in the article.
Can a Buyer Avoid Paying Closing Costs in New York State?
We have already established that both the buyer and the seller involved in a real estate transaction will need to cover the closing costs jointly. However, is that always necessary? Can a deal still be made even if only one side pays for the closing costs?
You may be surprised to learn that avoiding closing costs is possible or that both parties can minimize the closing expenses they must pay.
Let’s start with the buyers. If you are hoping to get out of paying closing costs as a buyer, there are a few things you can do.
Seek Sellers Looking to Move Their Home Quickly
First, you should look for sellers aiming to close a sale quickly. Some sellers do not have time on their side when making a deal. They may need the money for an emergency or already have plans elsewhere, so they would prefer to finish the sale as soon as possible.
After finding that type of seller, you can propose to meet their list price if they will cover your closing costs.
Look for Homes That Have Stagnated on the Market
Not every listing is going to generate a ton of interest. However, if a home you like has been on your local listings for a while, the person who owns it may strike a deal with anyone who presents a fair offer.
Use that as your cue to come to the table. Tell the seller you will make a deal if they cover your closing costs.
Complete the Purchase in a Timely Manner
The situations we have described thus far indicate that the seller is in a compromised position. As a result, they will be more receptive to covering your closing costs because you may be their best and only chance to make a deal.
So, what can you do if the seller has multiple interested buyers and you still want to avoid closing costs? Well, one option is to show the seller that you will close the deal quickly.
Make it known that you are their best option if they want to get something done as soon as possible. Even if they are not keen on the idea of paying your closing costs, they may consider it if you agree to finish the deal by a set date.
Sellers in New York State are lucky if they can close a sale in around 50 days. Promise to get close to that mark, and you may be able to avoid paying closing costs as the buyer.
Present a Strong Offer
There is one more way to avoid the buyers’ closing costs, which is fairly simple. Of course, it would help if you blew the seller away with your offer.
Present them with a deal they cannot refuse. Come up with something you know the other hopeful buyers cannot match.
The idea of paying a huge upfront cost may not seem good, but there is logic to it. If you know, you will have a hard time covering the cash payments necessary to complete the transaction; then you can make a better initial offer.
In a way, you are still paying for the closing costs by going about things in this manner. Still, this approach may be preferable because of its convenience.
Can a Seller Avoid Paying Closing Costs in New York State?
Did you know that sellers pay more in closing costs relative to buyers?
On average, the buyers closing costs will be 2-5% of the property’s purchase price. The sellers closing costs may go as high as 10% of the purchase price. Even on the low end, it settles at around 8%.
Zillow can offer some more context regarding those closing costs. Per Zillow, home sellers typically paid closing costs in the range of $19,000 to $24,000 on the properties they sold as of December 2019.
That is a big chunk of change, no matter how you look at it. Is there a way to avoid paying that if you are the seller?
Because you will owe taxes on your sale, you must still cover some costs no matter what. However, you can reduce the amount you owe.
If you have an in-demand property, you can let your interested buyers know that you will sell it to whoever agrees to cover your closing costs. Negotiating with your buyer could also lead to an agreement that allows you to avoid most of those payments. But, of course, you can also handle the sale on your own to avoid realtor fees.
An Option to Ponder for Sellers Who Want to Avoid Closing Costs
Did none of the options mentioned in the previous section appeal to you as a home seller? They may not even be options for you to consider because of how your property is perceived.
It is tough to be in that kind of position, but you still do not need to sign off on paying closing costs just yet. There is still one more option you must consider before you make a final decision.
The option in question involves selling to a cash home-buying company.
Cash home-buying companies make it easier for sellers to complete that transaction. In addition, there is no need to involve agents since you are dealing with the business directly. You are also not required to administer repairs because the company will purchase your property as-is.
As we have already hinted at, that will remove closing costs from the equation. The company will cover any costs associated with the transaction, so you can let them handle things.
These companies also submit offers quickly. After they get a chance to walk through your property, they will typically present you with an offer right then and there. You can accept the offer if you like or continue negotiating.
Closing costs are among the many things that complicate finalizing a home sale. However, if you want to keep things simple and sell your home for a tidy profit, the option we detailed here is well worth considering.
How Should Closing Costs Be Handled during Negotiations?
At this point, we now know that you can handle closing costs with some degree of flexibility. Buyers can find ways to avoid them; the same holds true for sellers.
Regardless of how you and your buyer decide to handle the closing costs, you need to be on the same page. Furthermore, you need to get that agreement on paper via the purchase agreement.
The purchase agreement is a legally binding document that sets the terms of the sale. It will outline the deal’s key elements, such as the agreed-upon purchase price and contingencies, and it may also include options for the buyer to renegotiate or terminate the sale.
Purchase agreements will also detail the closing costs.
You and the buyer must determine how you will handle the closing costs before anyone signs the purchase agreement. The arrangement itself does not matter that much as long as both of you agree to it.
If you agree to allow your buyer to renegotiate the sale up to a certain point, you must be ready to cover the closing costs. The buyer may decide that they will only push through with the sale if you cover those costs, so you should prepare yourself for the possibility.
Check and double-check the terms of the purchase agreement until you find it completely agreeable. Get your lawyer involved if you want some guidance.
Failing to abide by the terms of a purchase agreement will have dire consequences. Instead of making money on the real estate market, you may end up paying damages. Settle the closing costs and everything else in the purchase agreement to complete the transaction without much issue.
What Are the Sellers Closing Costs?
We mentioned earlier that sellers may need to pay around $24,000 in closing costs to finish a sale. You may wonder why those costs are so high.
Sellers have fewer closing expenses to pay relative to buyers, but those items are more expensive. So let’s go over those expenses in this section of the article.
Real Estate Agent Fees
What is the biggest closing expense for a home seller in New York State? You may be surprised to learn that it is often the real estate agent’s commission.
According to Homelight, the national average for a real estate agent’s commission is 5.8%. However, in New York State, sellers often pay closer to 6%.
Now, there are some key things to remember regarding the real estate agent’s commission.
First off, the 6% fee you are likely to pay as a home seller in New York State already accounts for both your agent and the buyer’s agent. On top of that, the realtors’ rates are negotiable. Try talking to them in the hopes of landing a better deal.
Hiring a realtor is not required if you sell your home in New York State. That said, you may have a tougher time generating interest in your property since the realtors will obviously prioritize their listings. However, you can get around that issue by working with a home-buying company instead.
Real Estate Attorney Fees
The vast majority of real estate transactions conducted in New York State involve attorneys. Heading into a negotiation without a legal representative at your side will be detrimental to your goal of landing a good deal.
Real estate attorneys draw up the terms of the purchase agreement. Tell them about the items you want included in the deal and let them negotiate with the other side. When both sides agree to the framework of the purchase agreement, both attorneys can start putting together the official document.
As the seller, enlisting the services of an attorney will also make gathering certain documents easier. Your attorney can help you save plenty of valuable time that way.
Attorneys may charge you by the hour or offer a fixed rate. Decide which one works better for you before finalizing your hire.
Unlike realtors, it is customary for buyers and sellers to pay for their respective real estate attorneys. Of course, you can still negotiate with your buyer if you desire.
Real Estate Transfer Taxes
Taxes should also factor into your considerations if you are selling your home in New York State. You will specifically pay the real estate transfer tax.
The real estate transfer tax in New York State applies to the sale of any property with a value of more than $500. Sellers will pay a tax of $2 for every $500 they make due to the sale. They may also be obligated to pay a mansion tax that amounts to 1% of their property’s sales price. The mansion tax would come into play if your property sold for more than $1,000,000.
Consult with your attorney so you can get clarity regarding the taxes you owe.
By the way, the tax rate is different if you are selling a property in New York City. The modified tax rate that applies to your property will depend on its type and sale price.
The transfer tax rate for most residential properties in New York City that sell for $500,000 or lower is 1%. However, if your property sold for more than $500,000, then your tax rate will jump to 1.425%.
The seller is the one who must pay for the transfer tax, but you can change that as part of the negotiations. As for the mansion tax, the buyer is the one who will need to foot that bill unless a different arrangement is made.
Title Search Fees
If you are trying to sell your property, you want to be certain that no one can contest your claims of ownership. The buyer will also want that assurance before they put the money down for the purchase.
You will need to pay for a title search to ensure that no one can make any potential claims on your property.
A title search will reveal if there are any tax liens or judgments that are currently on your property. In addition, it will reveal important details regarding your home, and your buyer can use what they learn to decide if they want to continue with the purchase.
Companies typically conduct title searches. The cost of a title search may vary from $100 to $500. The property’s location is the factor that most heavily influences the cost.
Given the costs associated with executing a title search, you may think of conducting it yourself. New York State residents can conduct their own title searches but doing so is generally not recommended.
For one, title searches tend to take long. So the time you could have used to finish the sale may instead be going into your title search.
There is also no guarantee that you will do the title search properly. Companies already know the details to look for to provide accurate results.
Lastly, your buyer’s lender may not accept the results of your personal title search. As a result, all your effort into that search may go to waste.
Taking on the title search fee is not ideal, but it beats derailing your sale.
What Are Potential Closing Costs That Sellers Must Also Keep in Mind?
Realtor fees, real estate attorney fees, real estate transfer taxes, and title search fees are the closing costs that most home sellers will need to pay. However, they do not account for all the potential closing costs a seller may encounter.
Found in this section are additional closing costs that can significantly eat into your profits.
The Remainder of Your Mortgage
Is the mortgage still active on the property you want to sell? If so, that is another closing cost to handle before you can finalize the purchase.
The remainder of your mortgage could be the highest closing costs. Hopefully, you are not selling too early, so you can keep this particular cost down.
Repaying your mortgage before selling is a necessity, no matter what kind of loan you used to pay for it. You may also need to pay the prepayment penalty. The mortgage prepayment penalty comes into play when a homeowner decides to pay off their entire loan early.
Title Insurance Fees
Despite conducting a title search, your buyer may still want additional assurance that their investment in your property does not become jeopardized. They may want title insurance so they are granted some measure of protection in the unlikely event that false claims or clerical errors subject their ownership of your old property to legal scrutiny.
Title insurance protects new homeowners by reimbursing their legal fees. So if something unexpected occurs, your buyer can mount a legal battle knowing that they have protection with title insurance.
The cost of title insurance is usually on the property’s final price. It will be around 0.14% of that final number.
Buyers often foot the charges for title insurance, but you can offer to purchase it to close a deal. It may be the last thing you need to pay to push the sale over the finish line.
Selling your home and preparing for your move are already stressful enough tasks. Worrying about closing costs while still juggling those tasks will be difficult.
Make things easier by working with a cash home-buying company. Contact us at House Buyers LI if you want to sell your New York home without paying any closing costs!