What’s the difference between the gross and net purchase price when buying a property?
How does this distinction impact the buyer agent commission payable on a purchase?
We’ll demystify this topic in the following video.
I’m Nick at Hauseit. Check out our website www.hauseit.com to learn how to save money
on commission when buying and selling real estate in New York City,
Long Island and the Hudson Valley. So let’s get started!
The buyer agent commission in NYC and New York real estate is typically calculated based on
the net purchase price of a property. For a traditional, non-new development listings,
the net purchase price almost always equals the gross purchase price.
Therefore, buyer agent commission is almost always calculated by multiplying the commission
percentage (%) by the gross purchase price listed in the contract. For example,
the buyer agent commission payable on the purchase of a $1,500,000 NYC condo
or co-op apartment with a 3% buyer broker commission is $1,500,000 x 3% = $45,000.
For new developments, the net purchase price is almost always less than the gross purchase price.
This is because a developer will typically offer some amount of concessions
to a prospective purchaser as part of the new development negotiation process. As a result,
calculating the buyer agent commission for a new development is not as simple as multiplying
the buyer broker commission (%) by the contract price (also known as the gross purchase price).
Instead, the buyer agent commission on a new development is typically calculated
by multiplying the buyer agent commission % by the purchase price net of developer concessions,
also known as the ‘Net Purchase Price’. Put another way, the net purchase price is calculated
by taking the gross purchase price listed in the purchase contract and deducting the value
of all the incentives/credits the developer (also known as the sponsor or seller) has
agreed to offer to a prospective purchaser. For example, if the purchase price is $1,500,000,
the buyer agent commission is 3%, and the developer is providing concessions of $75,000,
the buyer agent commission is calculated by multiplying 3% by $1,425,000 (in other words,
the gross purchase price of $1,500,000 minus $75,000 in concessions). In this example,
the buyer agent commission based on the net purchase price is $42,750, which is $2,250
less than the buyer agent commission based on the gross purchase price ($1,500,000 x 3% = $45,000).
There are many types of concessions a developer might offer on a new construction purchase.
For example, a developer may agree to pay NYC & NYS Transfer Taxes, sponsor legal fees or
some other incentive, such as covering the Mansion Tax, offering a free parking spot, storage cage or
bike storage or providing an alteration credit. The amount concessions a developer is willing to
offer depends on many factors including market conditions, how successful the building sales
effort has been to date and the degree of urgency the developer feels to move inventory at the time
of negotiation with a prospective purchaser. The difference in the buyer agent commission for
gross vs. net sale price can also be calculated by taking the amount of the concessions
and multiplying that by the buyer agent commission %. Referencing our previous example, the math is:
$75,000 (value of concessions) x .03% = $2,250, which is the same outcome as in
our previous calculation above. In other words, when concessions are being offered by a developer,
the buyer agent commission payable is reduced by the dollar amount of the concessions multiplied
by the applicable buyer agent commission %. Whether the commission on a new development is
based on gross vs. net purchase price is outlined in the New Development Co-Brokerage Agreement.
The co-brokerage agreement also specifies the buyer agent commission % being offered
by the developer. The most common buyer agent commission % for new developments in NYC is 3%.
Each new development has its own co-brokerage agreement
which a buyer’s agent must sign as part of the registration process for a prospective purchaser.
Under a standard new development co-brokerage agreement, “Net Purchase Price” shall mean
the purchase price set forth in the applicable Purchase Agreement less any discounts and rebates
of common charges or real estate taxes and the payment or crediting of any fees, costs or taxes
(including transfer taxes and the New York State Mansion Tax and/or other closing costs generally
considered the responsibility of purchaser pursuant to the Plan) by Owner, its principals
or lenders. “Net Purchase Price” shall not include any additional or extra payments made with respect
to construction or other work in the Unit, upgraded or additional appliances, decorations,
furnishings or other improvements within the Unit, architectural or design fees or charges
or similar fees, or any payments in respect of any superintendent unit at the Property.
Under the terms of this New Development co-brokerage agreement, the following
items are deducted from the contract price to compute the net purchase price
and associated buyer agent commission amount:
Common Charges or Real Estate Tax Credits: for example, a developer may agree to credit
the purchaser 1 or 2 years of monthly common charges, monthly taxes or both.
Sponsor Attorney Fees: purchasers are customarily responsible in the case of new developments,
but sponsors (developers) often agree to cover it. Working Capital Contribution:
most new development condos ask purchasers to contribute
1-2 months of monthly common charges towards the building’s reserve fund.
NYC & NYS Transfer Taxes: combined NYC and NYS Transfer Taxes are between 1.4%
and 2.075% of the sale price. Mansion Tax: the NYC Mansion Tax
ranges from 1% to 3.9% and applies to purchases of $1 million or more.
Any other fees, costs or taxes paid by the seller. If a purchaser agrees to pay the Residential
Manager Unit Contribution (as is customary for new developments but still negotiable),
this amount is not added when computing the net purchase price. In other words,
a buyer’s agent does not earn commission on the amount of the super apartment contribution paid
by the purchaser. Conversely, if the sponsor agrees to cover the Residential Manager Unit
Contribution, this is deducted from the purchase price when computing the Net Purchase Price.
So there you have it! We hope you enjoyed this video,
and if you did, please like, subscribe and leave us a comment.
We’d greatly appreciate it. I’m Nick at Hauseit, and we’ll seen you on the next video!