Sale of Brooklyn Properties: What Are the Costs Involved?
The headlines read: “Brooklyn Prices Hit Record High!” and from Clinton Hill to Bed-Stuy, it’s definitely a seller’s market here right now. But, while selling a home can indeed bring in fresh profits, not all of the money will go into your pocket. Between marketing your investment property, fees, and taxes exacted by both the city and the state, it really takes a cut out of your profit yield. But home sellers who know how to approach the deal smartly can substantially curtail transaction losses and maximize their yield.
Most people overlook the costs involved in selling a property because of a popular misconception that there are fewer expenditures involved than when buying. A former neighbor of mine, for instance, thought that the effect on her pocketbook would be minimal when she planned to put her north Brooklyn townhouse on the market. Her house was next door to mine and she knew that I’m a real estate investor so we chit-chatted about it a bit. When she mentioned that she didn’t anticipate her closing costs to be too much, I had to tell her no, no, no—especially not in New York!
The Price Tag for Selling a Brooklyn Property
New York is one of the more expensive states to sell a property in if you are not aware of some ways to navigate the transaction and mitigate the hit on your bottom-line. Most people approach the sale of their property with the false belief that they need a real estate agent when selling an investment property in addition to the customary attorney representation. Even more, the city and state both levy transaction taxes on the deal. Over the course of your sale, you’ll potentially be shelling out for a pretty wide variety of different costs, including:
A Case Study: A Typical Home Seller’s Closing Costs and Tax Obligations
A regular home seller will likely get hit pretty hard with all these charges at closing, but an investor should be smarter. Let’s examine how much of an investment would be required for a typical seller who is seeking to sell a property at an asking price of $1.425 million. The following fees would be paid after the offer is accepted.
Closing Costs for a $1.425 Million Home Sale by Resident Homeowner
Fee/ Tax | Rate | Decrease From Profit |
Broker Fees | 6% of Sale Price | $85,500.00 |
Attorney Fees | Varies | $2,500.00 |
Real Estate Transfer Tax | 1.004% | $14,307.00 |
Real Property Transfer Tax | 1.425% | $20,306.25 |
Misc. Title Company Fees | Varies | $200.00 |
Total Fees/Taxes Due at Closing | $122,813.25 |

While just these taxes and fees significantly dent the seller’s profit margin, she still has to consider her outstanding mortgage payoff and any capital gains tax that applies. Let’s say she bought her home in 1996—at the height of the market before the housing bubble burst—for $1.046 million. She has been paying on her 30-year fixed rate mortgage but still owes $550,000. This amount will be paid to the bank at closing.
Lastly, in addition to closing costs, the seller will owe capital gains tax. Since this house has been her primary residence for at least two years, she will be taxed at a rate that is in line with her income. This seller is financially comfortable but not rich, so will probably pay about 17% of the difference between her purchase price and sale price, or $379,000. Since she is single, she can exclude $250,000 of that profit from her tax duty. As a result, she will owe approximately $129,000 in capital gains taxes.
Let’s recap all of the charges against her profit when she sells:
Mortgage payoff: $550,000
Capital Gains Tax: $129,000
So, if she sells her home for $1.425 million, her net profit will be $401,813 for a ten-year investment.
A Comparison of Resident-Owner and Investor Home Sale Profits
I purchased a townhouse just six months ago from a distressed homeowner who reached out to me for help because he trusted my HomeVestors® franchise brand. With some major health issues and a resulting job loss, he could no longer make the mortgage payment. It didn’t make sense for him to rent out the house because his mortgage payment was considerably more than the current Brooklyn rental market will bear. He needed a way out and so I offered to give him a clean slate by making a cash offer for $475,000. The house needed some updating and minor repairs, like new paint, appliances, and cabinetry to the tune of about $23,000. All told, I’m in it for $498,000.
If I were to put it on the market for the same price as a comparable home, I would save some money by making different choices about how to go about the sale. For instance, as a HomeVestors® franchisee, I have access to the real estate investment analysis and valuation tool ValueChek™, an experienced Development Agent mentor, and a developed pool of ready buyers. I don’t need a real estate agent to market the property. And, since I buy and sell a lot of homes, my attorney will draw up the necessary paperwork at a discount. Let’s see how those options affect the closing costs compared to the homeowner we looked at earlier:
Closing Costs for a $1.425 Million Home Sale by Investor
Fee/ Tax | Rate | Decrease From Profit |
Broker Fees | None | None |
Attorney Fees | Varies | $1,000.00 |
Real Estate Transfer Tax | 1.004% | $14,307.00 |
Real Property Transfer Tax | 1.425% | $20,306.25 |
Misc. Title Company Fees | Varies | $200.00 |
Total Fees/Taxes Due at Closing | $35,813.25 |
I will pay $87,000 LESS than our other, inexperienced seller in closing costs!
Of course, we have to consider the other expenses associated with selling the property as well. Remember, I paid cash, so I don’t have a mortgage to pay off. Still, you’re probably thinking about that hefty 25% capital gains tax on properties that are held for less than a year. And, you’re right—if I didn’t know what I was doing I would owe A LOT. However, I learned a few tricks from my fellow HomeVestors® franchisees. I could effectively reduce the capital gains tax owed on this transaction to zero through a number of strategies, including rolling the sale proceeds into a similar investment within 180 days. So, here’s what my selling costs would look like:
Mortgage payoff: $0
Capital Gains Tax: $0
The bottom-line is that if I sell the property for $1.425 million, I get my initial $475,000 cash back and make another $914,786.75. That’s not too shabby for a few months’ worth of work!
The Value of Experience
The numbers speak volumes here. There are lots of costs involved in selling a house, but investors can reduce their fees if they handle the transaction carefully, especially investors in New York looking to take advantage of the current seller’s market. Leveraging the real estate investment tools and resources available to HomeVestors® franchisees, including the distinctive, lead-generating “We Buy Ugly Houses®” branding, can help maximize your return-on-investment compared to the average seller. If you would like to start using these resources in your own real estate investing business, you can request franchise consideration today.