When it comes to real estate, the prevailing belief is that everything is negotiable. The price. The settlement date. Even some of the contents in a home.
Are title fees on that list?
Title fees can be significant, especially in New York City. Title insurance premiums are included in the fees collected by the title insurance company at closing and generally cost about 0.4% of the sale price. Other fees included in the settlement process, such as transfer taxes, can be 1-2.7% of the purchase price in the five boroughs and generally 1% outside the city. There’s also a mansion tax in New York if the residential property sells for $1 million or more.
When clients seek your guidance, here’s what to tell them about negotiating and saving money on those fees.
Who Pays Which Fees?
Typically, in the New York area, transfer taxes are paid by the seller, and the mortgage tax is paid by the buyer. This is by local custom; there is no legal reason for costs to be allocated this way. Both transfer and mortgage taxes can be used as negotiating tools by either party.
Most buyers negotiate the price of the home, but there can be better options than haggling over the sale price. Sellers might be more willing to make other concessions, such as absorbing some closing costs. Even though the financial outcome may be the same, sellers tend to be more open to negotiations that don’t involve steep price cuts alone.
That doesn’t mean buyers should attempt to negotiate every fee. Some fees so obviously belong to the buyer, such as title insurance and application fees, that sellers will almost certainly balk at negotiating them.
Of course, negotiating power varies, depending on the home and seller. If the seller is desperate to sell, or the home has been on the market for a while without offers, sellers will be more open to negotiations. Buyers can also offer non-monetary incentives if the seller pays some of the closing costs, such as flexibility in the closing or move-out dates.
Keep in mind that a seller paying some of the closing costs is significantly more valuable than a reduction in the price of the home. A price cut of $10,000 will only reduce the monthly mortgage payment by a small amount. A $10,000 credit towards closing costs means the buyer needs much less cash at settlement.
Alternatives to Negotiating Closing Costs
There are two other ways for buyers to potentially reduce closing costs.
In some areas, programs exist, especially for first-time or lower income buyers, that will cover some of the closing costs. Another alternative is to use a lender that will roll the closing costs into the mortgage itself to reduce buyers’ cash requirements at closing.
Tips for Lowering Title Insurance and Taxes
In some cases, homebuyers can save on title insurance, which is a portion of the title fees, and they can also reduce their tax bill when the home is sold.
First, purchasing title insurance to protect the lender (almost always required) and a policy to protect the homebuyer (optional but highly recommended) at the same time will reduce premiums. Because the title and closing company can use the same due diligence for both policies, the buyer saves.
Second, when the home is sold, many of the settlement fees are considered part of the home’s basis price, which can mean tax savings. Those fees include the following:
- Title insurance (owner’s policy, not lender’s)
- Abstract fees
- Attorney fees related to the purchase
- Recording fees
- Survey fees
- Transfer taxes
The Cornerstone Value-Add
Cornerstone has skilled, experienced attorneys on staff who act as de facto, unpaid co-counsels for your clients, with unparallelled due diligence that uncovers covenants, restrictions, easements, and agreements that affect your client, even when buried deep in history.
With the experience gained from over 16,000 transactions, we can connect you and your clients with other real estate professionals who meet the same high standards you do for customer service, expertise, and integrity. Those professionals can also be excellent referral sources. In addition, we host regular events for the real estate community, which are excellent social, professional, and networking opportunities.
There’s a reason why Cornerstone has a five-star rating from Google reviews. And because title insurance rates are set by the government, your clients don’t pay more when they use Cornerstone. But they certainly get more. The earlier your clients are in the buying process, the more we can help. If your clients value the American Dream of homeownership, please share our definitive homebuyer’s guide to help ensure a smooth purchase process.
