Wednesday, August 17, 2016

Battery Park City

Downtown on the West Side between the Hudson River on the West and South, the West Side Highway on the East, and Chambers Street on the North.
River views and river life are the biggest draws for seekers of Battery Park City apartments and condos. Because the land is technically owned by the Battery Park City Authority, a public entity, residents of these downtown condos do not pay taxes, but rather PILOT — Payments in Lieu of Taxes — which help to maintain the glorious esplanade which is Battery Park City’s crown jewel. The beautiful ribbon runs for 1.2 miles, linking together a string of kid- and pet-friendly parks. Many of Battery Park City’s condos look out onto these wonderful bits of green to the Hudson and beyond. Strolling, rollerblading, biking, or just catching a spectacular sunset or a close-up of the Statue of Liberty are all perks enjoyed in this wonderful downtown neighborhood.
Built on the southwest tip of Manhattan, Battery Park City is both quiet and convenient. The luxury apartment living feels similar to suburban life, but is conveniently located near Wall Street for work and lively Tribeca for play. Riverhouse, Visionaire and Millennium Tower Residences are newer condominiums, providing twice-filtered air and filtered water — meeting an environmental standard for green living first set by the Solaire, a Battery Park City rental building that is the nation’s first environmentally-conscious high rise. Hudson Eats offers a high-end food court in the World Financial Center with establishments such as Blue Ribbon Sushi, Umami Burger and Sprinkles Cupcakes. Additionally, the eagerly anticipated Le District, described as “a French Eataly,” will open in late 2014, while Brookfield Place will open high-end retail options in the spring of 2015. Furthermore, an 11-screen movie theater screens both popular favorites and hosts part of the world-famous Tribeca Film Festival.

Tuesday, August 2, 2016


In order to prevent money laundering in the real estate market, the US Department of Treasury Financial Enforcement Network (FinCen) issued an order in January of 2016 requiring some title insurance underwriters and its agents to report certain real estate transactions. The New York Times had a front page article on January 13, 2016 describing the new law and its impact on title companies and what must now take place at a closing.The January 2016 order affected residential real property in New York County NY over $3 million and another affected residential real property in Miami-Dade County, Florida over $1 million.
FinCen has now extended the Order from August 27, 2016 through February 23, 2017. In addition to expanding the reporting period, it has expanded the scope of the reporting requirements. While the initial order only covered Manhattan (New York County, NY) and Miami Dade (Florida), the continued Geographic Targeting Order (GTO) has been extended to residential property in Bexar County Texas, Broward and Palm Beach Counties in Florida, San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara Counties in California, and Kings (Brooklyn), Bronx, Queens and Richmond (Staten Island) Counties in New York.In addition, the reporting requirement for the outer boroughs (Brooklyn, Bronx, Queens and Staten Island) has been reduced to $1.5 million (Manhattan remains at $3 million.
FinCen was established in 1990 by the United States Department of Treasury to "safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis and dissemination of financial intelligence and strategic use of financial authorities."
The GTO defines a covered transaction as any transaction that closes from March 1, 2016 toFebruary 23, 2017 involving:
1. Residential real property located in the geographic areas stated above.
2. The proposed buyer: is a legal entity, defined as a corporation, limited liability company, partnership or other similar business entity whether formed under the laws of New York, any other state, the United States or a foreign jurisdiction; therefore, individuals making the purchase are not covered by this regulation.
3. Consideration of more than $3 million outside of the outer boroughs and more than $1.5 million in Brooklyn, Bronx, Queens and Staten Island.
4. Without a loan or similar form of external financing from a financial institution; the reporting exclusion is only triggered by loans financed by a financial institution. If financing is provided by a private lender, seller or other business the transaction is reportable.
5. Any portion of the purchase price is paid using currency, cashier's check, certified check, traveler's check or money order. A personal or business check does not trigger the reporting requirement. If a purchase is entirely completed using wire transfers, already a common form of payment, the transaction is not subject to the new rule.
In the event a transaction meets the above criteria, the following must be reported to FinCen on a form IRS/FinCen 8300:
1. Identity of the individual primarily responsible for representing the Legal Entity; a description of the identification (driver's license, passport or other similar identifying document) obtained from the individual primarily responsible for representing the Purchaser with a copy retained in the file;
2. Identity of the Purchaser and any Beneficial Owner(s) of the Purchaser;
a. A description of the type of identification, driver's license, passport or other similar identifying document, obtained from the Beneficial Owner with a copy retained in the file;  
b. Any person or entity owning 25% or more of the purchasing entity is a "beneficial owner" and must be reported. If an entity is a member of the purchasing entity, members of that entity must be reported
3. Date of closing of the Covered Transaction; 
4. Total amount transferred in the form of a Monetary Instrument; 
5. Total purchase price of the Covered Transaction; and 
6. Address of the real property involved in the Covered Transaction;
Failure to report can subject the title company or any of its employees to a fine and/or penalty. Penalties can be assessed any time within six years from the date of the Covered Transaction. Civil actions may be commenced within two years of the date of the penalty or criminal conviction.
Commercial purchases including residential buildings with more than five units and individual purchases below the monetary threshold will not be scrutinized by FinCen. Title closers are being advised of this new disclosure requirement in the event the transaction fits the GTO and the transaction has not been identified prior to closing. It would be important for the real estate agent to identify the transactions which will be impacted by this new law and make the parties aware this may be of concern at the time of closing. In the event a party will not provide the information on a covered transaction, the insurance policy will not be issued by the title company which will obviously impact the transaction.
Alfred M. Fazio, Esq.
Capuder Fazio Giacoia LLP 
90 Broad Street 
New York, N.Y.  10004-2627  

Saturday, July 16, 2016

REBNY Legal Line Question of the Week: Square Footage Disclosure in Co-ops and Condominiums

QUESTION; I have noticed that many co-op listings do not include a square footage estimate but condominium listings do. Why do real estate brokers disclose the estimated square footage of a condominium unit but not a co-op unit?

ANSWER: There are a number of reasons why square footage is generally disclosed in condominium transactions but not in co-op transactions.
First, there is little data on file with New York City regarding the actual square footage of co-ops. Many co-ops in New York City were built before square footage was calculated and, in the 1980s, when many buildings were converted into co-ops, square footage was not required to be included in the offering plan. On the other hand, for condominiums, square footage is listed in the condominium’s original offering plan. This provides an authoritative reference for determining a condominium’s size.
Second, the calculations of co-op square footage that exist are frequently inaccurate. This is because, in New York City, there is no generally agreed upon method for calculating square feet. For example, while some developers include hallways, foyers, bathrooms, and unusable floor space in their calculation, others will not. Moreover, according to REBNY, &quotmany Manhattan apartments, including pre-war buildings, often have hard-to-measure elements like oddly shaped rooms, removed walls, or even turrets or alcoves.&quot
A final explanation is the difference in the type of ownership of a co-op versus a condominium. In condominium ownership, the unit owner owns real property and, accordingly, pays real property taxes that are based on the square footage of the condominium unit. However, in a co-op, the co-op shareholder does not own real property (the co-op shareholder owns shares in the co-op corporation). Thus, instead of real property taxes, the co-op shareholder pays maintenance fees to the co-op corporation based on the number of shares the co-op shareholder owns. The co-op corporation uses those maintenance fees, in part, to pay the entire building’s real property taxes (there are no real estate taxes allocated to each individual co-op unit). Consequently, for tax purposes, the square footage of the individual co-op unit is of less importance.
Important Tip:  When providing square footage for any property, Brokers must make it clear that their square footage numbers are only estimates.  If a potential purchaser or tenant is concerned about the square footage of the property, Brokers should suggest that the purchaser or tenant engage a professional to assist them in calculating and understanding the methodology of calculating square footage.  Failure to provide this disclosure may place Brokers at risk for liability if the square footage is not accurate.

BY: Neil B. Garfinkel, 
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP

Fernando Branco, GRI, ABR, CNE
Lic. Assoc. Real Estate Broker - NY
Realtor NY & CT
Graduate Realtor Institute (GRI) 
Accredited Buyer Representative (ABR) 
Certified Negotiator Expert (CNE)
Charles Rutenberg, LLC
127 East 56th Street, NY NY  10022
c: (212) 321-0115
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Tuesday, June 21, 2016

Legal Line Question of the Week: The Capital Gains Tax Exemption

The Capital Gains Tax Exemption 

Question: I have been speaking to a seller about representing her in the sale of a residential property. The seller has owned the property and used it as her primary residence for one year and nine months. The seller has indicated that she cannot sell until she has owned the property for at least two years. What is the importance of the two year time frame?

Answer: The two year time frame that the seller is referring to relates to the way that the &quotgains&quot on the sale of the property is taxed for income tax purposes. In general, income is taxed differently depending on how it was earned. Income is generally taxed either as a long term capital gain or as ordinary income. Long term capital gains are taxed at a preferential rate as compared to ordinary income. The profit from the sale or exchange of a property is a capital gain. On the other hand, ordinary income includes salary, wages, commissions, etc. Thus, after selling a home the amount gained on the transaction is usually taxable at the preferential long term capital gains rate.

Additionally, if the home seller owned the home for at least two years before making the sale, he or she may be partially or totally exempt from paying the capital gains tax. According to the Internal Revenue Service (&quotIRS&quot), a taxpayer may automatically exclude the first $250,000 gained from the sale (or the first $500,000 gained if filing with a spouse) if the following are true of the transaction:

  1. The taxpayer owned the house and used it as his or her primary residence for at least two of the five years preceding the sale;
  2. The home was not acquired in a 1031 Exchange during the past five years; and
  3. The taxpayer has not claimed any exclusion for the sale of a home in the two years prior to the current sale.
For example, if your seller waits for the two year period and then sells the property for a gain of $600,000, only $350,000 would be subject to the capital gains tax. The other $250,000 gained on the sale would fall into the exemption and the seller would not have to pay any capital gains taxes on this amount. 

Important Tip Real estate licensees cannot provide legal or accounting advice.  Accordingly, real estate licensees should always recommend that the parties they are representing speak with their own accountant, tax advisor and/or attorney in order to ascertain the exact tax consequences of a particular transaction.

By; Neil B. Garfinkel, 
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP

Monday, February 29, 2016

Legal Line Question: Ground Leases

Q: I am a licensed real estate salesperson and I am representing a purchaser who is considering a co-op apartment in a building that has a Ground Lease. Can you please clarify exactly what a Ground Lease is? Also, are there any particular considerations that should be made before purchasing a co-op apartment in a building that has a Ground Lease?
A: If a co-op building has a Ground Lease (also known as a Land Lease) it means that the co-op corporation does not own the land under the building.  Rather, the co-op corporation leases the land from the owner of the land. About 100 buildings in Manhattan have Ground Leases, many of which are co-ops. Generally the terms of Ground Leases are quite long, varying from terms of 50 to 99 years.
Several important considerations should be made before purchasing a co-op apartment in a building with a Ground Lease:
  1. Can the rent payable by the co-op corporation increase during the term of the Ground Lease? 
  2. If the rent can increase during the term of the Ground Lease, how is the increase calculated?  Is the increase in rent a set amount or is it based on a formula that requires a determination in the future (for example, the rent increase could be tied to the fair market value of the property).
  3. If the rent increases in the future, how does the increase affect the maintenance paid by the co-op shareholders?
  4. Does the Ground Lease restrict the co-op corporation in making structural changes to the building?
  5. What are the "events of default" under the Ground Lease and does the Ground lease provide for the co-op corporation to cure such defaults.
  6. What is the term of the Ground Lease and when does it expire?
  7. If the Ground Lease expires, does the co-op corporation have the right to renew the Ground Lease?
  8. How does the Ground Lease affect the ability of prospective purchasers to obtain loans in the co-op? For example, if the Ground Lease expires in 30 years or less (the term of a 30 year mortgage), most lenders are not going to make a loan in the co-op.
  9. What are the tax implications of purchasing a co-op unit in a building with a Ground Lease?  More specifically, do shareholders have a lower maintenance deductibility percentage (than co-op corporations that do not have Ground Leases) because the shareholders are prevented from deducting the portion of maintenance charges used to pay the rent under the Ground Lease?
  10. Does the co-op have a history of strong re-sales or does it appear that the Ground Lease creates an impediment to the ability to re-sell the co-op?

Important Tip:  This is not an exhaustive list and each situation may vary. Accordingly, it is recommended that anyone seeking to buy a co-op apartment in a building with a Ground Lease should consult with an attorney beforehand

The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel

Legal Line Question: The Mansion Tax

Q: I am a licensed New York state real estate broker and I am representing a purchaser who is considering buying an apartment for $999,999.00. My purchaser is worried that she will be required to pay the Mansion Tax on the sale. Can you please tell me what the Mansion Tax is and whether she will have to pay the Mansion Tax if the apartment closes at $999,999? 
A: The Mansion Tax is a fee paid by the purchaser of residential real property in New York State, when the total consideration is One Million ($1,000,000.00) Dollars or more. Residential real property is defined as "any premises that is or may be used in whole or in part as a personal residence at the time of conveyance, and includes a one-, two-, or three-family house, an individual condominium, or a cooperative apartment unit." The Mansion Tax is equal to 1% of the total "consideration." New York State Tax Law defines "consideration" as the price actually paid or required to be paid for the real property. This amount corresponds with the "amount of consideration for conveyance" listed on Schedule B, Part II, Line 1 of the New York State Real Property Transfer Tax Form TP-584 ("the TP584"). See the illustration below for the relevant portion of the TP-584.
If the total consideration for the property (as it appears on the TP-584) is for anything less than $1,000,000.00, the purchaser will not have to pay the Mansion Tax. Thus, if the total consideration for the apartment is $999,999.00 the purchaser does not have to pay the Mansion Tax on the sale.
Nonetheless, determining whether the Mansion Tax applies to a particular transaction is not as simple as ascertaining the purchase price for the property. If the purchase price of residential property is less than $1,000,000.00, a purchaser may still have to pay the Mansion Tax because of what is known as "grossed up consideration." In New York, the consideration in a real estate transaction is "grossed up" (increased) if a purchaser agrees to pay the seller’s transfer taxes on the transaction. In this scenario, the transfer taxes that the purchaser has agreed to pay are added to the purchase price as part of the total consideration.
Accordingly, real estate brokers should be aware of the transfer tax implications when the purchase price approaches $1,000,000.00 and the purchaser agrees to pay the seller’s transfer taxes. In such a scenario, the grossed up consideration could increase the total consideration to exceed $1,000,000.00, thereby implicating the Mansion Tax.
In New York City, real estate transactions are subject to both New York State and New York City transfer taxes. The New York State transfer tax is .4% of the total consideration. The New York City transfer tax is 1% of the total consideration if the sale is for $500,000.00 or less and 1.425% of the total consideration for sales greater than $500,000.00.
For example, if the purchase price of an apartment is $999,999.00 and the purchaser agrees to pay the seller’s transfer taxes, then the purchaser will be responsible for $3,999.99 in New York State transfer taxes and $14,249.99 in New York City transfer taxes. The combined $18,249.98 of transfer taxes is added to the purchase price and the total grossed up consideration amount is $1,018,248.98. Thus, the purchaser would have to pay the Mansion Tax on this transaction because the total consideration exceeds the $1,000,000.00 threshold.
Furthermore, if the purchaser agrees to pay the seller’s transfer taxes, the transfer taxes will be re-calculated using the "grossed up" consideration amount, rather than the original purchase price. Thus, in the example above, the transfer taxes would be recalculated using the grossed up amount of $1,018,248.98. This equates to $18,583.04 in combined New York State and New York City transfer taxes.
Important Tip: Please note that because these calculations are complex, you should always consult with an attorney and an accountant when commencing a transaction in which the Mansion Tax may be implicated.

The Legal Line Question by:
Neil B. Garfinkel
REBNY Broker Counsel

Monday, February 15, 2016

Legal Line Question: 1031 Exchanges

Legal Line Question: 1031 Exchanges

Q: I am a licensed real estate salesperson and I am representing a seller who is selling a three family investment property. She is interested in reinvesting the proceeds from the sale in a 1031 Exchange. What is a 1031 Exchange? Will the seller be able to avoid paying capital gains tax by participating in a 1031 Exchange?
A: The term "1031 Exchange" refers to Section 1031 of the Internal Revenue Code (the "Code"). A 1031 Exchange affords the seller of an investment property (the "Original Property") the opportunity to defer paying capital gains on the Original Property if the seller reinvests the proceeds of the sale in the purchase of a "Like Kind" replacement property (the "Replacement Property").
It is important to note that the seller does not avoid paying capital gains on the sale of the Original Property. Rather the capital gains taxes on the sale of the Original Property are deferred until such time as the seller is unable to complete a 1031 Exchange, at which time the capital gains will be payable.

To assist REBNY members in further understanding 1031 Exchanges, we have provided answers to the following frequently asked questions:
Q1.         Are there any significant time frames that a seller must keep in mind when participating in a 1031 Exchange?
A1.         Yes, there are two significant time frames that a seller must comply with when executing a 1031 Exchange. First, the seller must identify the Replacement Property within 45 days of the closing date of the Original Property. This 45 day window is known as the "Identification Period." Second, the seller must generally complete the acquisition of the Replacement Property within 180 days from the closing date of the Original Property.  This is known as the "Exchange Period." The Identification Period and the Exchange Period begin on the same day and run concurrently.
Q2.         What is "Like Kind" Property?
A2.         Like Kind Property is defined broadly under the Code. Any real property held either as an investment or for use in trade or business is considered to be of "Like Kind" with any other real property which is also held as an investment or for use in trade or business. For example, a condominium unit would be considered "Like Kind" with a house provided both properties are used as an investment or for use in trade or business. Real property held primarily for personal use does not qualify as "Like Kind" property. Also, property in the United States is not considered "Like Kind" with property outside of the United States.
Q3.         Is it possible to execute a partial deferment of capital gains taxes rather than a full deferment of capital gains taxes?
A3:         Yes, a seller is not required to invest the full sales proceeds from the Original Property in the Replacement Property. Rather, the portion of the proceeds from the sale of the Original Property that is not reinvested in the Replacement Property will not qualify for the deferment of capital gains taxes and will be taxed at the normal tax rate. 
Q4:         Is it possible to purchase more than one Replacement Property?
A4:         Yes, a seller may exchange the Original Property into (or out of) as many Replacement Properties as possible within the 180 day Exchange Period. However, the maximum possible deferment of capital gains taxes is capped at the amount of the sale proceeds of the Original Property.
Q5:         What is a Qualified Intermediary ("QI") and what role does a QI serve in the 1031 Exchange process?
A5:         A QI, sometimes known as a "facilitator," is a third party hired by the seller to hold the proceeds from the sale of the Original Property so that the seller never takes actual or constructive possession of the proceeds. A QI is necessary because, as a requirement for receiving a deferment of capital gains, the Code forbids the seller from ever taking possession of the proceeds from the sale of the Original Property.  Once the seller has identified the Replacement Property, the QI will use the proceeds of the sale being held by the QI in order to complete the purchase of the Replacement Property on behalf of the seller.
Important Tip: Because the seller must comply with very specific rules in order to utilize a 1031 Exchange, an accountant or attorney should always be consulted in connection with such transaction.

Thursday, February 4, 2016

New York Property Capital Gains Tax (and other taxes)

Here is a summary of the major tax categories when buying property in New York.  Besides capital gains, there is also monthly property tax, income tax and estate (inheritance) tax.  

Property Tax
Property tax is provided as a monthly amount with each property but paid quarterly.   A rough guide is $1 per sqft per month but it varies with the apartment and building.  For example, a 1000 sqft apartment may have monthly property tax of $1000.  This is the second largest carrying cost after common charges each month (excluding mortgage). 

Newer buildings usually have a tax abatement, which means a decreased property tax amount lower than the $1 per sqft per month example, during the first 10 years of the property's life.  This is commonly known as a 421-A tax abatement.  During the first 10 years, taxes typically increase every two years linearly and by year 10, it would be what taxes should be without the abatement.  

Income Tax
This depends on the owner's income level but assuming the owner only has income from one property in the US, it should be around 20 percent of taxable income.  It's important to note that the US allows annual depreciation of investment property.  This depreciation is a phantom expense which would wipe out taxable income especially in the early years of ownership.  

Estate (Inheritance) Tax
While US residents have estate tax exemptions, the exemption for foreign property owners is minimal.  Hence inheritance tax is the biggest exposure for foreign buyers because it can be up to 50 percent of property value.  

It is extremely important to get sound advice from a foreign buyer expert when structuring the purchase.   There are simple ways or more complex ways, both of which would protect the owner's estate from estate/inheritance taxes.  

Capital Gains Tax
Capital gains tax is the taxes levied on the profit arising from sale of the property.  Assuming the owner has owned the property for more than 1 year, capital gains tax ranges from 22 percent (if property is held individually) to 40 percent (if property is held through an entity or company).   Another area to get advice from an experienced tax attorney.  

For primary residence owners, there is a capital gains tax exemption of $250,000 for individuals and $500,000 for married couples.  To qualify, the owner must have lived in the property for at least 2 out of the previous 5 years.  

For the tax matters above, we will refer clients to an experienced tax attorney who specializes in foreign buyers of Manhattan property.

Real Estate Purchase Overview for Foreign Buyers

1 Why New York
Manhattan is the most expensive, most stable and most recognized market in the US.  The recent Knight Frank Wealth Report 2015 ranks Manhattan as the top real estate market in the world based on factors including economic environment, political climate, knowledge and quality of life.  Globally, Manhattan is a bargain when compared to cities like London, Paris and Hong Kong.  

2 Can foreigners buy property in Manhattan, New York?
Yes. Our foreign clients buy property in Manhattan because of brand value and appreciation potential. They often purchase as a pied-a-terre (vacation home), or as an investment property.

3  What type of properties are popular among foreign / international buyers?
There are two categories of apartments - condominiums and cooperatives. We recommend condos because of the higher appreciation and investment values. Co-op buildings often restrict ability to rent and perform renovations.  This reduces their attractiveness as an investment property. The process of buying a co-op is subject to board approval which prolongs the buying process.   Further, a co-op board may even reject a buyer.

The value of a condo, on a per-square-foot basis, is about 30 to 50 percent higher than that of a co-op. However, the appreciation potential and demand for condos are higher as well.  

Besides apartments, our clients also purchase commercial mixed use and multifamily buildings.  Apartments are more popular because they are easier to manage and simple to understand. 

4  What are expenses associated with owning a property in Manhattan?
For apartments, the main monthly expenses are: 
(i) property taxes
(ii) common charges
(iii) insurance
(iv) if financing is used, mortgage principal and interest.

New development apartment buildings often have a tax abatement which reduces the monthly tax bill. Without abatement, annual taxes are between 0.5 to 1 percent of property value.  Common charges average $1 per square foot per month and goes up or down depending on number of units and amenities.  Insurance is about $500 per year.

Expenses for mixed use or multifamily buildings are higher and include taxes, insurance, maintenance, repairs, property management and others.  

5  Financing for foreign / international buyers
Mortgage loan financing is available and can be obtained either through a U.S. or non-U.S. bank.  Since the credit crisis, lenders have tightened credit criteria and will require about 40 percent as down payment from a foreign buyer.   

Financing allows the ability to leverage funds, thereby magnifying returns.  For example, if  an investor buys one condo at $1 million in cash, he gets the appreciation benefit of  only one  apartment.  But if the investor obtains mortgage financing and only puts 50% down payment, he can actually buy two apartments, effectively benefiting from the appreciation of two properties with the same (theoretical) equity investment. 

The two ways of arranging financing are:
(i) Financing from U.S. lender:  This option is easily arranged through a bank in the U.S.   The requirement is usually a 40 percent down payment (60% Loan-to-Value).  Also, the buyer needs to show liquid assets that is usually based on a multiple of the monthly payments.  Since financing is in the U.S., the buyer would have to pay about 2% mortgage tax.

(ii) Financing from home country:  This refers to getting an international mortgage from the home country of the investor.   Hence from the U.S.'s perspective, a cash transaction.  The main difference is saving on the mortgage tax and various bank fees.  But of course, there may be other fees associated with the financing bank.  

We would refer our foreign clients to contacts for both options.  Ultimately, the international investor needs to do a cost benefit analysis.  It's a matter of comparing loan terms, amortization period, interest rate, costs etc.

6  Cash buyers 
Foreign investors purchasing in cash save on the New York mortgage tax, about 2% of the loan amount.  In addition, the cash buyer saves various bank related fees.  

7  Transaction costs
For the buyer,  transaction costs are about 5-6 percent of the loan amount.  This estimate includes mansion tax, mortgage tax, title insurance,  attorney fees, recording taxes and other administrative expenses.  With an all-cash closing, the transaction costs are about 1.5 to 2 percent of property price.  The broker's commission is paid from the seller's proceeds.

For the seller, transaction costs are about 8% of the selling price and this is driven by the broker commission and transfer taxes.

8 Taxes, taxes, taxes
The categories of taxes are: 

(i) Property tax
These are reflected as a monthly expense with each condo and paid quarterly.  If there is a mortgage, the bank could escrow the tax amount.  This means collecting and paying on behalf of the owner.  For properties without a tax abatement, this tax is roughly 1 percent of price per year.    

(ii) Capital Gains Tax - depends on how ownership is held.  

(iii) Annual Operating Tax
This refers to annual taxes on profits assuming the property is rented out.  The U.S. government allows depreciation of property every year.  In Manhattan, 40 percent down payment is typically required for rental income to offset carrying costs including financing.  Hence, assuming break even cash flow, the depreciation allowance would create a NEGATIVE taxable income.  This means no operating taxes for the owner.  However, depreciation would have to be recaptured at time of sale.

(iv) Estate tax:
The largest tax exposure to a foreign property owner (compared to a U.S. owner) is the estate tax.  U.S. law is such that if a foreign owner passes, estate taxes could be as high as 50 percent.  The good news is that there are tax structures that can be set up to remove this risk.   

We have tax attorneys and accountants in our network that are qualified to advise our clients on all the above tax matters.  

9  How does the agent fee work when buying or selling?
In New York, agent fees are paid by the seller. When the seller’s agent agrees to list a property for sale, a certain percentage is agreed upon as commission.  If the buyer is represented by an agent, this pre-negotiated commission would be split with the buyer’s agent.  If the buyer does not have an agent, then the seller’s agent keeps the entire pre-negotiated commission.  Hence, it is in the best interest of the buyer to have agent representation to help identify the right property, negotiate the best price and coordinate the entire purchase process.

Access to inventory:  The property inventory in New York is openly accessible to all.  For example, if there are 5,000 listings for sale at a given point in time, all brokers and consumers have access to this inventory.  There is no restricted or exclusive access given to certain brokers.  Brokers usually access the inventory through the broker system while consumers can access them through websites like and  Any broker can bring a buyer client to view any property.  As such, the value of a buyer's broker is in identifying and negotiating the good buys.  The value is not in getting access to properties.   

The fiduciary responsibility of the buyer's agent is to the buyer while the fiduciary responsibility of the seller's agent is to the seller - regardless of the fact that the commissions for both is coming from the seller's side.   This is just the way the brokerage trade agreement works in New York.  

Buying Process For Foreign / Overseas Investors

Below is the process for buying a condo in Manhattan, New York.  The process is similar for those buying the condo as an investment property or as a vacation home.  Main difference is that for investment property buyers, down payment required by the lender is higher.  

Estimated Time to closing after identifying property:
With Financing:  10 to 12 weeks
All Cash:  2 to 3 weeks

1.  Obtain pre-approval from lender (1-5 days)
Lender can be a U.S. bank or overseas bank at buyer's home country with an international mortgage program.  

2.  Identify Property (2 days - several months)
Property viewing can be a pleasurable or tiring experience.  Our value is in filtering properties based on the client's objective to maximize productivity of the client's time.  

3.  Make offer and negotiate price (1 week)
Negotiation skills are critical.   Experienced negotiators could obtain many favorable financial and non-financial terms for the buyer.

4.  Execute contract (1-2 weeks)
The agreed upon terms are provided to both parties' attorneys who will prepare the contract.  The buyer's attorney will perform due diligence on the property prior to actual contract execution.  Once all is agreed upon, the contract is executed.  At this time, a 10% deposit will be required from the buyer to be held in escrow by the attorney.

5.  Apply For Mortgage and Obtain Commitment Letter (6-9 weeks)
The buyer formally applies for a mortgage after which the lender will perform due diligence, including appraisals etc.  Consequently, the lender will issue a commitment letter.  

6.  Submit condo package to condo board for approval (1 to 4 weeks)
This occurs concurrently with Step 5 above.

7.  Schedule Closing
At closing, all parties - buyer, seller, bank, attorneys, brokers, will come together at a table.  A lot of paperwork is signed and funds will be provided to the seller in exchange for the buyer getting legal title to the property.  The deal will be completed at the table and usually no future follow-ups are necessary.