Closing Costs on Office Condos in NYC

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closing costs on office condos

 

An office condo is a great investment for small business owners looking for affordable office space in a great location. However, before you obtain an office condo, it’s important to be aware of all the potential fees you may incur along the way. Closing costs on commercial real estate are generally much higher than those of residential property, and can run into the tens of thousands of dollars. Below is a quick breakdown of some of the buyer’s closing costs on office condos in New York City.

 

Attorney

The first fee you may run into in the process of purchasing an office condo is the attorney fee. It is highly recommended you get a commercial real estate lawyer to help you negotiate the transaction and complete any complicated paperwork. This can cost approximately $5,000.

Origination fees

Origination fees, are payments the lender charges as compensation for the loan, and are quoted as percentages of the mortgage loan. For commercial properties like office condos in New York City, these can range from 1-2% of the total loan. You may also incur some extra fees for the loan application, the credit report, and the documentation prep, which can cost anywhere from $1,000 to $3,000.

Transfer Tax

Sellers must pay a nondeductible transfer tax (also known as excise tax) to pass a property on to the next owner. New York City has a different transfer tax than the rest of the state. If the gross purchase price of the property is $500,000 or under, sellers must pay 1.425%. If it the gross purchase price is over $500,000, sellers must pay 2.635%. If the seller is a government agency, they are exempt from paying the tax, in which case the buyer must pay instead.

Mortgage Tax

The mortgage tax is a state-imposed recording tax that serves to document the transaction. In New York state, the tax is 2.175% of loans under $500,000, and 2.80% for loans above $500,000 for commercial property. The mortgage tax also includes a basic tax of 50¢ for each $100 of principal obligation secured, and a special additional tax of 30¢ for each $100. For properties in New York City, buyers must pay an extra mortgage recording tax of 1.8% for loans below $500,000, and 1.925% for loans above $500,000.

Title Insurance

Title insurance is a policy that protects the owner from financial losses due to legal defects. It is mandatory for all properties that are under a mortgage. The cost of title insurance is  roughly $450 per $100,000. Mortgage title insurance is approximately $200 per $100,000. In most cases, the title company will also charge fees for title searches, examinations, notary fees, or recording fees, which can add up to about $1,500 or more.

Third Party

You will also incur some additional fees when your lender requires that you have building appraisals, building inspections, and environmental reports completed. This is in order to protect from liability after the loan is secured. Appraisals are approximately $3,500, and inspections can range from $200 to $1,500. Environmental reports vary in cost depending on the scale of the inspection. Smaller scale reports cost between $200 and $400. Larger scale reports are done in phases. Phase One can cost approximately $1,800. If there is a significant problem found during this phase, inspection will move to Phase Two, which can cost approximately $10,000.

 

Aurum and Sharpe is a full service commercial real esate brokerage and we can help you through the entire process. Contact us here.

 

For more resources on closing costs on commercial property in New York City, check out the following links:

On buyers’ closing costs

On what you can expect to pay

On the various types of fees

On how lawyers can help

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