Archive for Closing Costs

May
16

When Foreign Persons Sell

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In New York real estate sales there is one sure bet; you will pay taxes.  Whether you are a US tax payer or a foreign investor, the State of New York and the US Government will get their cut.

The question is when will you have to pay up?  The rules are a bit complicated, but one of our favorite legal bloggers, Jerry Feeney explains it like this:

For New York State: people who sell real estate in New York State, whether they are individuals, trusts, estates, or LLCs, must pay the tax at closing on the estimated gain as a condition of the sale, unless they are exempt from payment at closing.  Most transactions are exempt.  However, the exemption is only about the timing of the tax payment, not the obligation to make the payment.   Make no mistake; the seller is accountable to the taxing authority to account for the gains.

If you are a New York State resident, and/or the property being sold was the principal residence of the seller for 2 of the last 5 years, the exemption from paying at closing applies.

For example:  A seller who has owned a condo in New York City that is used as a second home, and is a New Jersey resident must fill out the applicable tax foand remit the tax payment on the estimated gain from the sale or they cannot close.  This is a very good reason to have a good accountant on retainer.

For United States Taxes, people who sell real estate in the United States must also certify at closing if they are exempt from the federal withholding requirement on real estate unless the sales price is $300,000 or less and the property is acquired for a primary residence.  If not, the seller must certify that they are exempt from withholding.  Face it, most New York City real estate is over $300,000.  There are 2 ways the seller could be exempt; if they are U. S. citizens, or resident aliens.  Others are ‘foreign persons’ under the statue and must withhold 10% of the purchase price unless they have obtained a withholding certificate from the IRS approving a smaller withholding.  These certificates can take up to 90 days to obtain, sometimes more, so be sure your attorney starts the process early to ensure a smooth closing.

For Example:  A Canadian citizen who does not have any immigration status in the U.S., and who sells an investment property would be required to have 10% withheld at closing, which must be remitted to the U.S. Treasury.  This seller would then need to file a U.S. Tax return for the year that the property was sold, regardless of whether they have any other U.S. income.

It is vitally important that your team include a qualified attorney and accountant to help you navigate these treacherous and complicated waters.

Based on article by Jerry M. Feeney,  Esq., Residential Real Estate Attorney.

This post is provided as informational proposes only and should not be construed as legal, accounting or tax advice by the RealEstateGeezer. You should seek advice from a qualified professional.

 

Oct
26

Sorry says the Board: The Price isn’t Right

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Manhattan buyers and sellers have known for years that the real estate market has its share of challenges.  Co-op boards, who can reject applications for many reasons, are now rejecting sales if they think the price is too low in order to protect the property values in the building.

Buyers undergo intense scrutiny during the co-op application process, including providing volumes of financial and personal history, even references for their pets.  Co-op boards can reject an application for almost any reason, and they are not required to state the reason.

Some boards are determined to maintain the value of the building even if it means rejecting serious buyers.  Sellers want to sell their apartments, and buyers are determined to get a good deal or not overpay for the apartment.   Lawyers are fielding phone calls from boards and purchasers seeking legal advice.

For those outside the New York City area, this is astonishing since co-ops are rare.  But in New York City, where co-ops make up about 75% of the housing stock in Manhattan, this is a way of life.  Brokers are becoming accustomed to brokering deals where the contract price would be acceptable to a board, but the seller gives concessions like splitting the flip tax or paying for renovations as part of the contract.

Sometimes the board will reach out to the broker or individuals involved and let them know what the sticking point before flat out rejecting the application.  However, when a board is unwilling to approve based on low price, they run the risk of being considered a difficult board causing people to shy away from the building; or miss the clues that a seller might be in distress and default on the maintenance charges if unable to sell, putting the building in a tough financial situation.

A good broker will be able to negotiate the ins and outs of a board package, explain the pitfalls and advantages, and advise you on what position you should take.  Manhattan real estate is unlike real estate any other place in the world.  Having a broker by your side who knows their market is an asset to your team.

 

Inspired by New York Times article

May
16

Purchaser’s and Sellers Closing Costs Guide

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Closing Costs Guide-Created by Jerry Feeny

Real estate closing costs can be confusing. These PDFs created by Jerry Feeny,  a well known and respected New York Metro real estate attorney, cover closing costs (coops, condos, townhouses-and other real property)  for buyers and sellers in New York City , The Hamptons and Westchester & Rockland Counties.

We hope you find this guide helpful in ‘demystifying’ the age-old question of buyers, ‘what are my closing costs?’ And from sellers, ‘what costs do I have to pay at closing and what is left over from the sale price?

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If you’re thinking about buying an apartment in Manhattan, this may be a great time to grab the gold ring.  Prices are much lower than the last few years – brokers are looking back to 2004-2005 for comparative prices (comps).  And mortgage rates are amazing – fixed-rate mortgages have been hovering in the 5% to 6% range, the lowest in the past 20 years except for a stray month here or there.  The experts don’t expect them to go lower and aren’t ready to predict when they’ll start going up again.

If you look at listings online, asking prices might still seem high. Sellers hate to let go of the peak value their apartments reached on paper in 2006 and 2007.  Be sure your buyers’ broker knows pre-bubble values and is an all-out negotiator for you.  Along with purchase price, negotiations can also include terms, asking the seller to pay some of the points, for example, or maintenance rebates or contributions to other closing costs . Think about finding a dedicated buyer’s broker.  He or she will negotiate harder for you and shouldn’t cost a dime, as broker’s fees should be built into the seller’s cost.

Start the process by making sure you can qualify to buy a coop or condo apartment:

  • Can you come up with at least 20% of the purchase price for a down payment?
  • Will your total housing costs (Mortgage + Maintenance–for a co-op — or Common Chargers + Taxes–for a condo) be at or under about 28 % of your income?  This ratio can be somewhat higher for a condo purchase.
  • Do you have an excellent credit score?  The best rates in NYC currently require a credit score of 760 or more. If you’re not there, note that a good mortgage broker can find fairly competitive rates with FICO scores of at least 720. If your score is below that, it’s a great idea to raise your score as much as you can before you start to shop.
  • Will you have the cash for closing costs and, what many co-op boards and/or lenders require, post closing cash reserves up to one or two years to cover mortgage, taxes, maintenance etc?

Why now?  The best answer can be found by asking recent buyers.  One new owner bought her one-bedroom co-op (with patio) in Soho in March. She had stopped looking late last fall because the prices were just out of reach.  But by early ’09 she could buy a lot more apartment than she’d expected, in a lot more locations. She ended up paying $490,000 a 15% reduction from the $569,000 asking price.  As the Time Out New York article points out in this case as well as two other examples, there are closing costs, some perhaps unexpected, beyond the simple purchase of the apartment.

Up-front costs

$98,000

Down payment on Soho apartment (20 percent of $490,000 contract price)

400

Appraisal

3,317

Bank, mortgage broker and closing costs (including credit report, loan origination, commitment and processing fees, flood certification and a document delivery fee)

2,125

Buyer’s attorney fee

1,500

Floor refinishing

1,349

Co-op fees (including building lawyer fee, first month’s maintenance and a not-yet-refunded $250 move-in deposit)

1,654

Interim interest charges (interest on the mortgage paid at closing)

1,250

Title fees (including bank lawyer fees, lien search and UCC filing)

500

Inspection (the seller tagged the sale “as is” before accepting the low offer, but still, “I wanted to know what I was getting into,” D’Agata says)

$110,095

Total
(We deleted $2,500 she’d put on another apartment where she didn’t get board approval.)

Monthly costs

$2,226

Mortgage payment (interest rate: 5.5 percent)

$29

Co-op insurance

$931

Maintenance charges and taxes

$3,185

Total

If you’re ready to make the move,  plan to live in your new place for at least three to five years and  have a comfortable cushion of post closing reserves, then it can make good financial sense to buy now.  Take a look around.  You may be pleasantly surprised at what you can afford.