Closing credits: Here's how much NYC sellers are paying now—and how to negotiate your own deal sweetener
- Closing credits are more common for new condos, especially in a slow market
- Condo developers can be willing to pay transfer taxes, a credit of about 3 to 4 percent
The maximum credit when bank financing is involved is 6 percent.
iStock
One way to think of a closing credit is a quiet discount—because the buyer gets a concession from the seller at the closing table and it is not publicly recorded.
This perk is typically available when you're buying a new condo, where it keeps the official sales price higher for the developer, who has other units to sell. Sometimes these credits are available for co-ops that are difficult to sell for some reason, like an estate sale. The official price, the one that gets officially recorded, will be significantly higher than what the seller actually pays, which helps maintain a higher average sales price for a co-op building. (But closing credits also cause havoc for building comps.)
If you're a buyer, how much can you expect to get these days? Read on.
[Editor’s Note: A previous version of the article ran in February 2019. We are presenting it again with updated information for January 2024.]
Credits can be offered by sponsors and co-ops
Developers turn to closing credits when they have too many apartments and are having a hard time selling them all, says real estate attorney Adam Stone of The Stone Law Firm. Sponsors are often willing to pay the transfer tax, which can result in a significant discount.
For example, in the $2.5 million sale of a condo in Brooklyn, the sponsor is paying the city and state transfer taxes while the buyer is paying the mansion tax. "That’s a credit of about 3 to 4 percent of the asking price, and it comes on top of a storage unit at no charge," Stone says.
That's a sign of both the building owner’s desire to make a deal but also their unwillingness to budge on the price that gets publicly recorded.
Not all credits are worth it
Just because you are offered a closing credit doesn't mean you should always proceed with the deal.
“Because some buildings or owners want a certain price on paper, often their only option is to offer a credit," says Jessica Kaufman, a broker at Corcoran. "I’ve had some buyers who were offered closing credits or construction credits but ultimately didn’t take those apartments as it would cost them more in a mortgage on a monthly basis and were nervous that the appraisal wouldn’t come in for the contract prices."
| How much sellers are paying in closing costs now | |
|---|---|
| Sponsor vs. co-op sales |
|
| Transfer tax as a closing credit |
|
| All-cash deals |
|
Transfer tax as a closing credit
The buyer is usually on the hook for paying city and state transfer taxes but is something that can be negotiated. For a $1 million deal, that would be a combined 1.825 percent of the sales price (0.4 percent for the state tax and 1.425 percent for the city tax), representing a closing credit of $5,425.
Stone points to two other recent deals where the sponsor picked up the tab for these taxes, representing a 3 to 4 percent closing credit. For a condo on the Upper East Side that sold for $4 million, the sponsor is not only paying the transfer taxes but also the sponsor attorney's closing fee and one year of common charges, which is another $40,000 in closing credits.
The other deal involves a condo on the far west side of Manhattan with an $8.5 million sales price. There the sponsor is paying the mansion tax on top of city and state transfer taxes.
How to approach closing credit negotiations
Closing credits appeal to developers because they keep the recorded cost of the units high. "The sponsors would rather give a credit than negotiate on price,” Stone says, adding that he suggests buyers approach these credits as if they were negotiating the price. “They should also have a good understanding ahead of time what they can expect for closing costs so they understand these negotiations.”
If you're thinking of negotiating a closing credit, it's a mistake to think you can go directly to the sponsor to get a deal. This is where a broker can add value because they understand the current market and are familiar with what concessions are being offered.
All-cash deals can mean higher credits
When there's financing involved, the maximum credit a bank will allow is 6 percent. However, when the deal is all-cash with no bank restrictions, there’s no limit to the credit.
That was the case in the sale of a $3 million condo on the Lower East Side. The buyer was paying all cash, and a credit of $200,000 was thrown in by the developer—more than 6 percent of the purchase price. In these cases, it's likely the sponsor is structuring other incentives into the deal, like seller-paid transfer tax, maintenance charges, and other perks like parking and storage.
—Earlier versions of this article contained reporting and writing by Emily Myers.
Articles you might also like...
Closing credits: What are they and why would you negotiate for them?: A closing credit is a sum of money paid to the buyer by the seller at closing and is a way of reducing the price of the property for the buyer while keeping the recorded sales price higher for the seller.
Closing credits seal the deal but can mislead the next buyer: Closing credits are not officially recorded and may cause subsequent buyers to overpay. Here’s how to spot evidence of closing credits in the comps.
A closing cost guide for buyers and sellers in NYC: When you buy or sell in NYC you expect to pay various taxes and fees. Depending on the building and the market, there may be negotiability around who pays some of the fees and taxes.
