Why More NYC Homebuyers Are Looking for Cost-Saving Alternatives in a Competitive Market
Go Back To Previous PageBuying a home in New York City is very expensive. As this article shows, there are many hidden costs to buying a home, and they can really add up quickly.
Many buyers want to make sure they are getting the best deal for their money and that it is being spent as smartly as possible. That’s why they are asking questions they may not have considered before, and demanding that their agents deliver more value for their money.
The Real Cost of Buying in NYC for Homebuyers
Most people think of the cost of a home in terms of the purchase price and the down payment. But the costs go beyond these two numbers and are often unexpected for first-time
home buyers. When people calculate their affordable price for a home, they need to factor in the closing costs on top of the down payment, as well as other costs such as attorneys’ fees, title insurance, mortgage tax, and move-in costs.
These additional costs are known as closing costs. The Consumer Financial Protection Bureau outlines that these costs can total up to 5% of the home’s purchase price for a single transaction. For example, on a $900,000 home, the total closing costs could equal $45,000.
The New York State mansion tax would also apply to homes purchased for more than $1 million.
That would mean for the $1.2 million NYC home, the mansion tax would equal $100,000. Finally, there are also costs for an attorney, title insurance, the mortgage recording tax, and keys to the home, among others. All of these costs, which were not shown in the home listing, can greatly increase the true cost.
The costs above are not secret, but they can be tough for homebuyers to get a handle on before it is too late. In many instances, these figures are not provided in a easily digestible format until a buyer is well along in the homebuying process, at which point the costs may be difficult to absorb.
Why Cost-Conscious Buyers Are Changing Their Approach
It was generally assumed that home buyers received free service from their buyer’s agent and didn’t pay a thing for it. However, the buyer’s agent receives a commission for their services to the buyer, which is paid by the seller. This commission is typically a percentage of the home’s purchase price and is split between the buyer’s and seller’s agents on both sides of the transaction.
Recently, there have been big changes in how Real Estate Commissions are disclosed and paid. In 2024, the National Association of Realtors was involved in a major settlement that details new rules regarding the disclosure of compensation to buyer’s agents and how it is to be paid. Recently, there has been a big push by the media and real estate companies to educate home buyers about the cost of buying a home and how much of that cost goes to the buyer’s agent as a commission. As a result, a growing number of buyers are asking the same question: what am I paying for, and can I keep more of it?
This is not to say that buyers are looking to save money by cutting out the middleman and doing as much of the searching and negotiating as possible on their own. No, most home buyers still need the services of a qualified real estate agent. But they are looking for a different type of representation. They are looking for a real estate agent who can provide value and be transparent about what they can offer.
Broker Commission Rebates and How They Work
Another strategy is for the buyer’s agent to receive a broker commission rebate. For many years, it has been the norm for the broker’s fee to be paid by the seller of a home. However, in 2015, the National Association of Realtors settled a lawsuit allowing the practice of broker commission rebates to be paid by the listing agent to the buyer’s agent to be in turn given to the home buyer. In essence, a home buyer can receive a portion of their home buyer’s agent’s commission as a rebate on the home.
Rebates on commission can be up to 2% of a home’s purchase price, or $24000 on a $1.2 million home.
They can be used to cover the buyer’s closing costs, pay for the first year of common charges or be put towards renovation expenses.
Firms can now compete on value by returning some of the commission to the buyer while still offering them professional service and representation. This is a model that property management companies like Trust Home Properties and Austinvestors approach by combining buyer guidance with transparent cost structures. This model is becoming increasingly popular across the country, and New York buyers are starting to learn about it.
Evaluating the Full Transaction Cost for NYC Homebuyers
While searching for homes online is easier and faster than before, home buyers still rely on a buyer’s agent for home inspections, contract reviews, and professional negotiations. Even though more information about homes and buildings is now publicly available, such as price per square foot, that information does not equal strategy or experience. All buildings have unique characteristics and home buyers need a seasoned real estate agent to review all the details of potential homes for purchase.
But data is not strategy, and knowing the price per square foot of a listing, for example, is not going to give you any insight into a variety of critical issues, including whether or not a co-op building is facing a pending assessment, the strength or weakness of a co-op’s board, and a seller’s price flexibility, to name a few. A seasoned real estate agent provides his or her clients with insights not readily available on the Internet. And given the complexity of a New York City real estate transaction, the expertise of a seasoned agent is of extreme importance.
The Urban Land Institute, in a recent study on the home-buying process, analyzed data from the NAR’s 2017 Profile of Home Buyers and Sellers.
According to the research, while data has changed how home buyers select a home and an agent, having access to more data has not replaced the value that a good agent brings to the transaction. Rather, having access to this information has changed the way home buyers use an agent. Home buyers are now coming to the table as more informed consumers, arriving at viewings and open houses with a list of questions and a clear set of criteria for evaluating a home.
This is a healthy development. It pushes agents to do better work and gives buyers more confidence in the decisions they’re making.
Smart buyers now look at total transaction cost, not just purchase price. This means accounting for:
- Closing costs and taxes specific to New York
- Ongoing carrying costs include maintenance fees, taxes, and insurance.
- The potential for near-term capital improvements or assessments in the building.
- The terms of any rebate or real estate commission that will be given back to you at closing.
The Long-Term Investment Case
New York City has a healthy real estate market. Every real estate transaction is a two-edged sword; some are wonderful, and some are not. Smart home buyers in New York City recognize that each home purchase is also a long-term financial decision and are better off for treating it as such. As with any other investment, the results can vary from home to home, even within the same building. A smart buyer will seek to make the best decision with his or her hard-earned money, purchasing a home that will grow in value over time and, if rented out, bring in sufficient income to offset the carrying costs.
If a homebuyer views a home purchase in New York City as a long-term financial decision rather than purely as a housing transaction, they will benefit from thinking about how the home that they are buying will be as a potential future selling point, as a rental property, and as an asset in terms of its impact on the surrounding neighborhood.
This kind of homebuyer will also benefit from avoiding the urge to participate in a bidding war, even when it seems the home they are considering is the only one they can purchase. Such a homebuyer will also benefit from realistically estimating how much they can afford to spend on buying and owning a home, taking into account the full range of costs and expenses they will incur.
There are some good ways that buyers are saving money.
The buyers who are doing well in New York real estate are buying smart, saving money, and making smart financial decisions. These smart buyers are saving money in a number of ways, but that does not mean they are cutting corners or forgoing important services.
This is a reasonable thing for a buyer to want. And there are increasingly more ways for buyers to get what they want, including cost-saving strategies, negotiation tactics, and closing processes designed with their best interests in mind.
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
