Real Estate Questions I Get Asked at Inopportune Times

Life is chock full of things that look almost identical but lead to very different outcomes. Let’s explore a few:

Example 1: Water and Vodka. Look very similar – one keeps you alive, supposedly leads to clearer skin, flushes toxins out of your body, makes up 90% of fruit. The other is trying to destroy your life and all your relationships, makes you wake up looking like you’ve been dragged through a garbage disposal, is a toxin, and can ruin many fruit flavors for the rest of your life.

Example 2: Chicken nuggets and chicken tenders. One is tangible chicken meat whose quality varies gravely with the degree and quality of breading and frying involved. The other comes in shapes like dinosaurs, is part “meat glue” (and they say this isn’t a professional newsletter) and are always the uncontestedly superior tasting chicken product. Insider tip: never google what chicken nuggets are made out of.

Example 3: “Let’s go for a Hike!” or “Let’s go hiking.”.  “Let’s go for a Hike!” means wearing vans, yoga pants, and an artfully oversized plaid button down for a pleasant wilderness stroll fueled by Luna bars. “Let’s go hiking.” means literally repelling towards your death off the face of a mountain and planning to survive the night off goo containers that come in traditional American three course meal flavors.

When people start the home buying process, the first conversation off the bat is the difference between condos and coops because it changes ownership type, approval process, purchasing capabilities, ownership leniency, and most importantly, price tag. The question I get frequently when clients start looking is, “Why are condos so much more expensive than coops?”

*client looks through a list of condos, coops, and condops*

This isn’t as simple as explaining a price difference between 2003 Abercrombie and Old Navy – do you not SEE the embroidered moose?! – so let’s dive on into this topic in a few different segments. This month, why are condo closing costs so much higher than coop closing costs?

1. Lender’s title insurance: Title insurance is one of the largest closing costs. It protects the lender from any future title issues and is required with all loans whether purchasing or refinancing. The dollar amount is based on a percentage of the mortgage amount. It is a standard calculation so all title companies calculate it the same way.

a2. Municipal search: The title company does a search on you, the seller and the building. They check things like back taxes, bankruptcy, public utilities and judgments and liens on all parties. They charge several hundred dollars for this. With a co-op, a lien search is done, the searches are included in the overall fee, and typically the information is on file, so there is no charge.

a3. Owner’s title insurance: Owner’s insurance is obtained only when you purchase a condo. Again, it protects the buyer/owner if any title issues come up later on. It is based on the purchase price, and calculated on the dollar amount. The higher the price, the higher the owner’s insurance. But it is a one-time fee that you do not pay when refinancing. Again, it’s not needed with a co-op.

4. Recording fees (deed and mortgage): You pay to record the deed and the mortgage so your ownership and lien go on public record. It is recorded in the county where the property is located. Clerks usually do it by page count, so, for example, it can be a base cost of $20, plus $5 per page. The cost will depend on how many pages the document is and the county. You only pay for the deed when you buy and the mortgage recording each time you refinance. A co-op only has a UCC-1, which is filed when you get a mortgage. The cost is around $200.

a 5. Mortgage tax: This is the largest closing cost with real estate. New York, in particular, has a hefty mortgage tax, which differs slightly depending on the county where the property is located. It can run between .75 percent and 2 percent of the loan amount. You pay every time you refinance (unless you can do an assignment of the mortgage, which is a different story). Co-ops do not have this charge.

6. Real estate taxes (in escrow): When you own a condo, you pay your own real estate taxes, so the lender will require an escrow account be started when you close to insure they have enough money in your account when taxes are due. This can be from 2 months to 10 months, depending on when you close versus when they are due.  Note that you can waive escrows and pay your own real estate taxes. The lender cannot charge a fee in New York to waive this, but other states might be able to charge.  With co-ops, your real estate taxes are included in your maintenance fees so you don’t need an escrow.

Hypothetical Closing Costs for a $500K Apartment

	Co-op	Condo
Origination charges by lender
Origination	$4,000	$4,000
Processing fee	$0	$0
Lending fee	$750	$750
Required services the lender chooses and buyer pays
Bank attorney fee	$1,100	$950
Appraisal	$550	$480
Credit report	$75	$75
Tax service	$0	$85
Flood certification	$15	$15
Title and lender services that a buyer can shop for
Lender’s title insurance	$0	$1,750
Municipal search	$0	$600
Lien search	$300	$0
Owner’s title insurance (for purchases only)	$0	$2,150
Recording fees
Record deed	$0	$200
Record mortgage	$0	$200
Record UCC-1	$95	$0
Transfer taxes and other government fees
Mortgage tax	$0	$7,170
Initial deposit into your escrow account
Real estate taxes	$0	$800
Additional charges
Your attorney fee	$2,500	$2,500
Co-op management attorney fee	$500	$0
Move-in fees/elevator deposits	$200	$200
Board application fee	$300	$0
Board credit report fee	$75	$0
Board fee to review recognition agreement	$300	$0
Escrow for maintenance (two months)	$2,000	$0
Escrow for common charges	$0	$1,200
TOTAL CLOSING COSTS	$12,760	$23,125
Estimated monthly housing expenses
Principal and interest	$1,909.66	$1,909.66
Maintenance fee	$1,000	$0
Common charge	$0	$600
Real estate taxes	$0	$400
TOTAL MONTHLY HOUSING EXPENSES	$2,909.66	$2,909.66