Closing Costs for a Sale of a Cooperative Unit
Probably the best way of looking at your Closing Costs for a Sale of a Cooperative Unit is that they will be divided into four (4) different categories. The primary four (4) categories are the following:
- Brokerage Commission Fees;
- Cooperative/Managing Agent Fees;
- Bank Fees; and
1. Brokerage Commission:
Brokerage Commissions may vary depending on the particular geographical region that you are located and based upon the particular market condition that you are in. For instance, if you are in what is commonly known as a “Seller’s Market Place”, the Brokerage Commission may be a bit less, depending upon the aggressiveness of various Brokers. As a general rule, a Brokerage Commission is 6% of the Purchase Price. When getting ready to sell a property you should count on the Brokerage Commission being 6% of the Purchase Price. From experience, Brokers that are very well versed in the particular area of selling Cooperatives, especially those that are well known in the industry generally do not budge from the 6% position of their entitlement to a Brokerage Commission.
Most people agree that having a Broker involved with the particular transaction is a very highly positive maneuver. The Broker may assist in negotiating prices and maximize the potential that a Seller will receive. Regardless, there are many Sellers that proceed with what is commonly known as “SBO” and/or a “FSBO” transaction, which is “For Sale By Owner”. This is dealt with in another section of this website entitled “FSBO”. It speaks for itself, that a true “For Sale By Owner Transaction”, you do not generally pay a Brokerage Commission. However, this is not always the case.
There are a lot of instances in which although you are selling and announcing that the transaction is “For Sale By Owner”, it may be that the Purchaser that actually visits the Unit is accompanied by a Broker. In such situations the Broker, is entitled to a Brokerage Commission. Sometimes there may be negotiations with that particular Broker so the 6% commission is not 6% but be a lower commission structure. However, under all circumstances, it is imperative to have in writing your Brokerage Commission Agreement. One should never be in a situation where the Brokerage Commission is a debatable proposition. As such, under all circumstances, there must and should be written Brokerage Agreement.
2. Cooperative/Managing Agent Fees – Check Your:
- Cooperative Attorney Fee: The Cooperative Attorney fee is approximately $ 450.00. The Cooperative that you are involved with may need to retain an Attorney to review documents or prepare or take other further necessary action that may be deemed necessary by the Cooperative. Generally, unless negotiated differently, this fee falls upon the Seller. As such, it is imperative/important that you check the Cooperative Board Application to see whether or not this fee is applicable.
- Flip Tax/Transfer Fee: The Flip Tax/Transfer Fee is 1% to 3% of the Purchase Price. This fee is one of the most highly overlooked fees. It should be noted that the term “fee” is used here as opposed to the term “tax”. A lot of individuals think that the flip tax is a Governmental Tax imposed by some Governmental Authority. However, this is incorrect. The authority that is imposing the particular tax in this particular instance is the Cooperative itself. There is a valuable reason as to why Cooperatives have flip taxes. This is also discussed later in this website in another section. However, it is imperative that one knows the particular flip tax that may be imposed by the Cooperative. Flip Taxes are set by the Board of Directors of the Cooperative. The amount is, indeed, a set fee. As such, one does not need to guess as to the particular fee but rather should know it from the governing documents of the Cooperative.
- Move-out Deposit/Move-out Fee- Approximately $ 500.00 to $ 1,000.00. First, in this category, it is very important to distinguish a fee from a deposit. If it is a deposit, then it is money that is being placed with the Managing Agent and should be returned to you after the Closing. In fact, a lot of times, if you have already moved out of the Building/Cooperative, you should not need to pay this deposit at all. However, a lot of times, this is a required “fee” by the Managing Agent and the Managing Agent does indeed pick up the fee and you are charged for it. You will be able to determine whether it is a “fee” or a “deposit” and what amount the Managing Agent charges for the move-out deposit/ or fee based upon the Board Application.
- Managing Agent’s Processing Fee: The Managing Agent’s Processing Fee ranges between the amounts of $250.00-$750.00. While these amounts vary, it may be determined by a review of the Board Application which governs the particular transaction. Sellers may contact their Managing Agent to obtain from the Managing Agent specific information from how much fees/charges will accompany a Board Application. Many individuals ignore this particular fee when it should not be as sometimes, this fee may be well higher than the average.
- Adjustments: Adjustments technically are not fees at all. They are exactly what they stated to be, “Adjustments”. Adjustments are made to maintenance. A Seller should be entitled to get paid back for any time that they have prepaid any maintenance for the particular month or months that they do not own the property i.e. after the Closing. For instance, if you close on February 2 of any particular calendar year and have already paid your February and March maintenance, you should be entitled to a credit/adjustment from the Purchaser commencing from February 2 through the end of March. This is assuming that you have paid both the February and March maintenance fees. It is, however, imperative that in order to do an appropriate adjustment that you keep very accurate records of all maintenance payments that you have made. This means, that you need to demonstrate that you are entitled to the adjustment in question. You may do this by either having a written letter from the Managing Agent attesting to the fact that the maintenance has been paid or, which may be more likely, a check marked paid that the maintenance has been paid for the month in question.
- Recognition Agreement Fee: The Recognition Agreement Fee is approximately $350.00 to $ 500.00. A Recognition Agreement sometimes also called an Aztec Agreement is a document which is prepared by your Bank’s Attorney and provided to your Cooperative via the submission of your Board Application to have your Cooperative sign for the Bank. This agreement is essentially your Bank requesting the Cooperative to “recognize it” and to provide the Bank with the various rights should you default which rights are superior than those of the Cooperative. The fee goes to the Managing Agent for the purposes of reviewing the document a/k/a Recognition Agreement a/k/a Aztec Agreement to ensure that same is acceptable for the Cooperative to sign.
- Miscellaneous Cooperative Charges: This is essentially a catchall provision in which Managing Agent/Cooperatives may charge additional fees to review the Board Application. This fee is charged to a Seller. You should know this fee, by simply reviewing your Board Application and having discussions with your Attorney regarding this particular issue. This will vary by Building.
3. Bank Fees:
- Pay off the Bank Fee/Pickup Fee: The Payoff Bank Fee/Pickup Fee ranges from the amount of $ 250.00 to $500.00. One of the more unique features of a Cooperative transaction is that a representative of the Payoff Bank actually appears at the Closing with the original collateral documents i.e. the original Stock Certificate and Proprietary Lease “Stock and Lease”. These are detailed arrangements which shall be coordinated by your Attorney with your Payoff Bank. It is very unadvised for you to make any arrangements to pay off your Bank Loan immediately preceding your determination to effectuate a sale of Cooperative. In a lot of instances, this causes major confusion as to the location of your original Stock and Lease. The original Stock and Lease need to be brought to the Closing. The Bank is required to bring these original documents to the Closing. These arrangements should be left to your Attorney to coordinate and organize with your Payoff Bank. Additionally, there are certain documents which need to be filed in order to ensure that your payoff appropriately occurs. After your Closing you do not want to be liable for any further obligations underneath your loan. This must and should be left up to your Attorney to coordinate.
- The UCC-III Financing Termination Statement Fee: The UCC-III Financing Termination Statement commonly known as the UCC-III ranges in fees from $75.00 to $150.00. The amount of this fee, while should not to be minimized, is not the critical point of this particular fee. The critical point of this particular fee is to ensure, that at the time of the Closing, the document commonly known as UCC–III Termination Statement is properly recorded and filed. The only way of doing this, is to ensure that at the time of the Closing there is appropriately recorded a UCC –III is filed with the New York County Clerk’s Office. The reason for this is if you have a loan on your Cooperative Unit, and you are seeking to pay off your bank, you want the Payoff to be of record. This ensures after you pay-off your loan your Bank does not come back to haunt you someday. This is, of course, handled by your Attorney who should be well versed in this particular issue. However, it is, unfortunately, overlooked when it should not be.
- Stock Transfer Tax: The Stock Transfer Tax is $0.5 per share. This is generally a very small fee, but one that is also overlooked quite a bit. Although overlooked, it should be considered a fee. This fee is calculated by the amount of shares of the Unit. As such, if you own 200 shares, you would be paying five cents for each share that is being transferred. This particular fee is indeed a New York State required Transfer Tax. It should be noted, that a lot of times, the fee is not picked up by the managing agent due to the small amount that is involved. Nonetheless, savvy Sellers are indeed aware of this particular fee.
- New York City Transfer Tax: The New York City Transfer Tax is a specified amount. For any Cooperative Unit where the Purchase Price is less than the amount of $500,000.00 the fee for the New York City Transfer Tax is 1% of the Purchase Price. As such, if you are selling a Unit for $ 400,000.00, you will be paying 1% of $ 400,000 i.e. $ 4,000.00. As such, for any amount below $500,000.00, the amount to calculate the New York City Transfer Tax is rather straightforward. However for any sale of a Unit in the amount of $500,000.00 and above, the New York City Transfer Tax changes to 1.425% of the Purchase Price. Needless to say, this is a dramatic difference. If the Purchase Price for example is $750,000.00, you will be paying to New York City for the New York City Transfer Tax the amount of $10,687.50. As such, the additional .425% is a very large difference and must be recognized by any potential Seller. Many people govern their Purchase Price based upon this particular calculation. If the particular Unit’s Purchase Price is close to $500,000.00 some Sellers intentionally keep the Purchase Price at $ 499,000.00 to avoid having to pay the additional 0.425%. This should be carefully analyzed and scrutinized with your Attorney as not to make any mistakes and to ensure that the correct tax is being applied. It should be noted, to avoid confusion and full transparency, that New York City charges a filing fee of $50.00. As such, whatever your calculation may be to your ultimate New York City Transfer Tax, please add an additional $50.00.
- New York City Commercial Transfer Tax: Another section of the New York City Transfer Tax is the New York City Commercial Transfer Tax for Commercial Cooperative Units. This may apply when one Unit owner is selling two separate units if the Units have not been appropriately and properly combined as deemed by the New York City Department of Buildings and the New York City Department of Finance. As such, if you have a combined Unit, it is very important to make a determination as to whether or not you have properly combined the Units. This is a discussion to have with your attorney and, a very important one. For Commercial Units if the Purchase Price is up to $500,000.00 the tax rate is 1.425%. If the Purchase Price is anything over $500,000.00 the tax amount is 2.625%. As such, there is a dramatic difference and it is very important if you have a combined Unit to discuss this matter in great detail with your Attorney to determine what tax applies.
- New York State Transfer Tax: The New York State Transfer Tax is 0.4% of the Purchase Price. This is a straight calculation by simply multiplying your Purchase Price by 0.4%. As such, if your Purchase Price, for example, is $ 690,000.00, you would go $ 690,000×.004% to equal $ 2,760.00.
- Mansion Tax: The Mansion Tax is indeed a New York State Tax. It applies to the sale of any property one million dollars or more. However, this is not generally a Seller paid tax. This is being included in this particular section so that there is a careful analysis to make certain that the Seller does not get stuck with this particular tax. As such, it gets back to the careful drafting of the Contract of Sale to ensure that this tax will not be applicable in your transaction.
- The New York State Non-Residency Tax: The New York State Non-Residency Tax is very highly overlooked on deals with those that are not full-time residents of New York State. The definition of who is not considered a full-time resident may be determined via conversations with your Attorney or Accountant. However, if you are a Non-Resident, you must calculate this Tax as it is a rather hefty tax which must be paid at the time of the Closing. This Tax is approximately 7.8% of your net profit from the proceeds. Note: This is not gross profit. As such, there is and needs to be a calculation as to what your net profit is and the amount of the tax that must be paid at the time of Closing to avoid penalties/taxes. If you are a resident of New York State, you need not worry as this tax does not apply to your transaction. If you are not a resident of New York, then this is tax is applicable to your transaction and must be discussed in detail with your Attorney and/or Accountant because as one may see, the tax may be rather large depending upon your profit. This is one of the few taxes that depend upon the net profit that you are actually making at the time of the Closing.
- FIRPTA Non- Foreign Status Certification by Individual Transferor/Seller: FIRPTA is a tax is applicable to not only Nonresidents of New York State but also those who are deemed to be “Foreigners” as that term is defined by the Internal Revenue Service. Generally, while the withholding tax needs to be calculated by an accountant, the bottom line is that for a Foreign Seller there will is a 10% withholding of the Purchase Price at the time of Closing. This tax needs to be submitted to the Internal Revenue Service. As such, while the ultimate tax that may be due to the Internal Revenue Service is less, at the time of the Closing, unless you have received other appropriate documentation that would indicate that less of an amount is due and owing. You will and should calculate that 10% of the Purchase Price will be withheld at the time of the Closing.
As can be seen, Closing Costs are unique and need to be carefully analyzed. Only through the assistance and expertise of Kishner & Miller may one fully understand the ramifications and obtain a true total of Closing Costs.