Real Estate Law – Seller Costs
Very often clients come to see me when they’re interested in selling their houses and they want to know what kind of expenses they’re going to face in these transactions, and I started off by explaining some of the very ordinary expenses that they will encounter. One of the first things I talk about is whether or not they’re using a real estate broker. If they’re signed up with a real estate broker, and have a listing agreement with the broker, and the broker finds a buyer for their property, then according to the listed agreement they have to pay a certain percentage to the real estate broker. And that is a negotiable item; people sometimes don’t understand that you can negotiate the commission that a real estate brokerage office charges.
The standard fee is six percent, but very often in this market, real estate brokers will negotiate that and you can get it for less than six percent. So right off the bat, if you’re selling a house for $500,000 and the commission is 6%, right off the bat there’s a $30,000 brokerage expense. The second most important expense that a seller has to be aware of is if they have an existing mortgage on their property. So they have to calculate how much they owe, what’s the approximate balance. They usually bring to me, or I ask the client to bring to me, their most recent statement, which shows what the balance is on their mortgage. And some people have more than one mortgage, so you have to do the calculations on all of the mortgages, the first and the second, sometimes. And you add that up, and then again you’ll be subtracting that from the gross selling price. In addition to those two items, the payoff of your existing mortgage and the real estate brokerage commission, there are transfer taxes, and in New York City, a transfer tax is a sizable amount for properties less than $500,000; it’s 1% of the selling price, real property transfer tax; and New York state charges $4 per $1000. So if the property’s being sold for $500,000, then New York City transfer tax, being 1%, would be $5,000, and then New York state would be $2,000. So that’s $7,000 in transfer taxes. And then you have a legal fee; generally my legal fee is anywhere from $1,500 and up, depending upon the complexity of the transaction, and there is a fee to a title company representative who appears at the closing, and handles the satisfaction and payoff of the existing mortgage; that generally ranges anywhere from $200-300, and then you have standard adjustments at the closing, meaning you would have to either pay your real estate taxes for the quarter that you’re in, depending on if it’s New York City, and any outstanding water and sewer charges that are on the record. Those are generally some of the most common expenses that a seller faces in a transaction.