Closing Costs for Foreign Buyers of New York City New-Development Condos

Foreign buyers generally face the same purchase-side closing costs as domestic buyers. The buyer’s nationality does not, by itself, create a separate New York City acquisition tax. A purchase in a new condominium development, however, can carry materially higher closing costs than a resale-condominium purchase.

In addition to the mansion tax, title insurance and ordinary legal and recording expenses, a new-development purchaser may be required under the sponsor’s contract to pay expenses ordinarily borne by a seller, including New York City and New York State transfer taxes and certain sponsor-related legal or administrative charges. Financing adds another layer of costs, including mortgage-recording tax and lender expenses.

The actual amount depends upon the purchase price, the size and structure of any mortgage, the offering plan and contract terms, and any concessions negotiated with the sponsor. These costs should be estimated before an offer is made—not after the contract is circulated.

The New York State Mansion Tax

The mansion tax is paid by the purchaser and applies when the consideration for residential real property is $1 million or more. In New York City, the rate increases with the purchase price:

• $1 million to less than $2 million: 1%

• $2 million to less than $3 million: 1.25%

• $3 million to less than $5 million: 1.5%

• $5 million to less than $10 million: 2.25%

• $10 million to less than $15 million: 3.25%

• $15 million to less than $20 million: 3.5%

• $20 million to less than $25 million: 3.75%

• $25 million or more: 3.9%

Because the tax applies to the entire purchase price—not merely the amount above a threshold—crossing into a higher bracket can produce a meaningful increase in the purchaser’s closing costs. The contract price and any additional consideration treated as part of the purchase price should therefore be reviewed carefully.

Sponsor Transfer Taxes

New York City and New York State generally impose real-property transfer taxes on the seller. In a new-development transaction, however, the sponsor’s form contract frequently requires the purchaser to pay those taxes in addition to the purchase price.

For an individual New York City condominium unit, the City transfer-tax rate is:

• 1% when the consideration is $500,000 or less

• 1.425% when the consideration is more than $500,000

The basic New York State transfer-tax rate is 0.4%. For New York City residential sales of $3 million or more, an additional State transfer tax of 0.25% applies, increasing the seller-side State transfer tax to 0.65%. In a new-development sale, the sponsor’s contract may shift both amounts to the purchaser.

These are legally seller-side taxes, but the contract may shift the economic burden to the purchaser. Whether the sponsor will absorb some or all of them is a negotiated business term and can depend upon the development’s sales pace, the particular apartment and the strength of the purchaser’s offer.

Title Insurance and Financing Costs

A condominium purchaser ordinarily obtains an owner’s title-insurance policy covering the apartment and, if financing is used, a separate lender’s policy. Premiums are based principally upon the purchase price and mortgage amount. The title bill may also include municipal and judgment searches, departmental searches, survey-related charges, recording fees and other customary disbursements.

A financed purchase also generally incurs New York mortgage-recording tax. For a residential condominium in New York City, the borrower’s customary portion is generally 1.8% of a mortgage below $500,000 and 1.925% of a mortgage of $500,000 or more. The tax is calculated on the mortgage amount, not the purchase price. The lender ordinarily pays a separate 0.25% portion.

Additional financing expenses may include appraisal, credit, origination, underwriting, lender’s counsel, flood-zone determination and prepaid-interest charges. Foreign-national loan programs may also require specialized documentation, greater reserves or larger down payments, although those underwriting requirements are not themselves closing costs.

Sponsor and Building Charges

New-development contracts often require the purchaser to pay charges that do not appear in a typical resale transaction. Depending upon the offering plan and contract, these may include:

• The sponsor’s attorney’s fee

• Offering-plan or document fees

• A working-capital contribution

• Contributions associated with the superintendent’s unit or other building property

• Initial condominium common charges

• Move-in deposits and fees

• Managing-agent, application, waiver or processing charges

• Charges for storage, bicycle spaces, parking or other separately licensed or purchased amenities

A working-capital contribution is commonly calculated as a specified number of months of common charges. It becomes part of the condominium’s funds and ordinarily is not a refundable security deposit.

These charges vary substantially from one development to another. They should be identified from the offering plan, purchase agreement and closing statement rather than estimated solely from the listing price or marketing materials.

How a Buyer Rebate Can Offset Closing Costs

In many New York City new developments, the sponsor pays the buyer broker’s commission. That allows Eschewal New York to return a substantial portion of the commission to a qualifying purchaser, subject to the terms of the transaction and applicable law.

The rebate is not a reduction in service. The purchaser receives Ed’s full attention and the benefit of both his legal and brokerage experience throughout the transaction. It is simply a different business model—one that shares part of the developer-paid commission with the buyer, where it can materially offset mansion tax, title insurance, mortgage-related charges and other closing expenses.

Although the developer pays the brokerage commission, Eschewal’s professional duties and loyalties are owed to its buyer-client—not to the developer.

Now add the distinction we discussed:

Closing Costs Versus Ongoing Ownership Costs

Closing costs are amounts paid in connection with acquiring and closing title to the condominium. They should be distinguished from the expenses that continue after closing.

Ongoing ownership costs may include condominium common charges, annual New York City real-estate taxes and, where applicable, taxes or surcharges associated with non-primary-residence ownership. A purchaser acquiring the apartment as a pied-à-terre, investment property or family residence should evaluate both categories before committing to the purchase.

A low estimate of closing costs does not necessarily mean that the apartment will be inexpensive to carry, just as substantial closing costs do not necessarily indicate unusually high annual ownership expenses. Both calculations are necessary.

Paste it after the rebate section and save. Next we’ll add the final planning/consultation section and disclosure.

Before Making an Offer

Foreign purchasers should request a transaction-specific closing-cost estimate before making an offer on a New York City new-development condominium. The estimate should reflect the proposed purchase price, anticipated financing, mansion tax, title and recording expenses, and every sponsor charge shifted to the purchaser under the offering plan and proposed contract.

Eschewal New York helps purchasers identify these expenses early, evaluate available sponsor concessions and determine how a buyer rebate may offset a meaningful portion of the total cost. Actual legal and tax consequences should be reviewed with the purchaser’s attorney and tax adviser.