DippelLaw New York Law Blog

A client of mine recently asked me to write a blog article article explaining step by step the process of selling your home in New York. This article assumes you’re selling a one family home. These steps may differ if you’re selling a cooperative apartment or condominium unit.

Step One, Putting your home up for sale.

Most people will hire a real estate broker to assist them in finding a purchaser. The broker will ask the seller to sign a listing agreement setting forth the term of the agreement, usually 3 to 6 months, the amount of the commission as a percentage of the sale price and whether the broker may put the listing on the multiple listing service.

Step Two, Hiring an attorney.

The broker has found a buyer who made an offer that you have accepted. Now you need to hire an attorney to represent you in the sale. The broker may recommend an attorney they have dealt with in other transactions but you are free to hire any attorney you feel comfortable with. Most attorneys offer free consultations in which they will describe the services they offer and their fee for representing you as a seller. I typically ask the prospective client to sign a retainer agreement setting forth the scope of my representation and my fee.

Step Three, Going to Contract

Even though you have verbally accepted an offer from the buyer, the transaction isn’t legally enforceable until both you and purchaser have signed a contract of sale. Your attorney will prepare the contract and email a copy to the Purchaser’s attorney to review. Once the Purchaser’s attorney has reviewed the contract and any proposed changes are agreed to, the Purchaser will sign the contract and it will be sent to your attorney with the down payment check. The down payment is customarily ten percent but is negotiable. Most contracts now permit digital signatures and the down payment may be wired to your attorney’s escrow account as well. Once the contract is received by your attorney, you’ll sign as seller and a PDF copy will be emailed to the Purchaser’s attorney together with a cover letter confirming receipt of the down payment which will be held in your attorney’s escrow account.

Step Four, Your Attorney Reviews the Title Report

Upon receipt of the fully signed contract, the Purchaser’s attorney will order a title report, a copy of which will be sent to your attorney. The report will indicate any mortgages you may have as well as the current real estate taxes and any other possible liens. Your attorney will ask you to contact the NYC DEP to arrange for a final water/sewer reading and to contact your bank to obtain a payoff letter for any mortgages you may have. For a discussion of title insurance see http://www.dippellaw.com/wordpress/why-do-i-need-title-insurance-when-i-purchase-my-home-in-new-york/

Step Five, Scheduling the Closing

Once your Purchaser has received their mortgage loan approval your attorney will schedule a closing with the Purchaser’s attorney. The closing is a meeting of the parties and their attorneys at which time the balance of the purchase price is paid to you and you will deliver possession of the home to the Purchaser. Prior to the closing, your attorney will prepare the deed and transfer tax returns which you’ll sign at the Closing. For a discussion of what taxes you’ll pay at the Closing, see http://www.dippellaw.com/wordpress/what-taxes-will-i-have-to-pay-when-i-sell-my-new-york-city-home/

Step Six, The Closing

The Closing will generally take place at the office of the attorneys for the Purchaser’s mortgage lender. You will sign the deed, the transfer tax returns and various title affidavits. You’ll receive the balance of the purchase price in the form of official bank checks from the Purchaser and their lender and the balance of the down payment, after your attorney has paid transfer taxes and other fees from their escrow account.

Step Seven, The Closing Statement

After the Closing your attorney will send you a closing statement summarizing the transaction together with copies of documents you’ve signed at the Closing. You’ll need this when you file your income taxes for the year the Closing took place.

While for the sake of brevity I have simplified the procedure somewhat, this general outline will give you an idea of what to expect when selling your home.

Even first time home buyers have a general awareness that they will need to pay for something called “title insurance” when they close on the purchase of their home. However, few buyers, I would guess, have an understanding of exactly what they are paying for.

Unlike when you purchase a car, there is no certificate of title issued by a government agency, which serves as proof of your ownership rights. You will receive a deed from the seller at the closing, but this, in and of itself, does not give you what real estate attorneys call “marketable title.” Simply put, marketable title establishes you as the owner of the property with all the rights that such ownership entails.

Obtaining marketable title is an involved process. First, the seller, who signs the deed, must themselves have marketable title. To determine that your seller has marketable title, your title company will search the public records and have their attorneys interpret the results. Second, the deed from the seller must be recorded with the City Register. See my blog post for a discussion of why a deed is recorded.

http://www.dippellaw.com/wordpress/i-lost-the-orginal-deed-to-my-home-will-i-have-a-problem-selling-my-home/

As you can see, obtaining title to a home is much more complex then acquiring title to a car. Your attorney will employ a title company which will do this work, for a premium of course. They will determine that your seller has marketable title and insure that your deed is recorded. Your title insurance company will then issue a proposed policy of title insurance, called a “title report” that insures that you have marketable title. Lastly, your attorney will review the title report to make sure the coverage complies with the terms of your contract of sale.

When you purchase your home, be sure you retain an attorney who has experience with title insurance so you can have peace of mind that you have marketable title.

Clients often ask me about the tax consequences they will face when they sell their New York City  home.  Whether you’re selling  a one or two family house, a cooperative apartment or a condominium unit, you will be subject to several taxes.

First, there are transfer taxes that must be paid at the closing of the sale.  New York State imposes a transfer tax of four dollars per thousand or .4% of the sales price of the home.  New York City imposes its own transfer tax, starting at 1% of the sales price for sales under $500,000.00 and increasing to  1.425% for sales above $500,000.00.

Second, there may be capital gains taxes that may be due when you file your Federal and New York State income taxes for the tax year in which your home was sold.  If your home was your principal residence for two of the five years prior to the sale, you are entitled to a credit of $250,000.00 ($500,000.00 if a married couple are joint owners of the home) against any capital gains.

Capital gain is determined by subtracting your cost basis (generally your original purchase price as adjusted, i.e., by adding cost of capital improvements and closing costs) from your sale price.  If you have inherited your home, you will be entitled to a “step up” in cost basis equal to the fair market value of the home at the time of the death of the prior owner from whom you received the home.

There is an exception as to when income taxes (based on any gain from the sale of your home) are due if you are a non-resident of New York State selling a New York home.  In that case you must file a Non-Resident Real Property Estimated Income Tax Payment Form (Form IT-2663) and pay any estimated New York State income tax at the time of closing.

Finally, if your home ceased being your principal residence for 2 of the past 5 years prior to closing, you can defer the payment of gains tax if you purchase replacement property through the use of a 1031 exchange.

Tax laws are complex.  When you sell your home, be sure to employ professionals familiar with the sale of New York City property to avoid being surprised by an unexpected tax bill.