Who pays the transfer tax on the sale of a property?

October 13, 2014 Paul A. Sarcona, Esq.

In New York, the seller is required to pay the transfer tax. The amount depends on the county which the property is located and in some counties, it depends on the type of property, i.e., vacant land, 1 family, or commercial property.

An exception applies to transfer of new construction residential properties and real estate owned properties (REOs). In these instances, it is the custom of the industry in new construction conveyances for the builder or the REO lender to pass the transfer tax payment to the purchaser. That is, the transfer tax payment is built into the terms of the purchase agreement wherein a purchaser agrees to pay the transfer tax. Some builders are adamant about transfer taxes being paid by the purchasers and are willing to let the purchasers walk away from the deal. Of course, I would ask if that were to happen what kind of market are we in – a buyer’s market or a seller’s market? If it is a buyer’s market, the terms may be able to be dictated by the buyer.

In New Jersey, it is typical that the seller pays the transfer tax even on new construction. In recent years, however, builders have attempted to pass the transfer tax onto the purchaser. Once again, this is contractual. REO lenders still pass the transfer tax bill to the purchaser.

Even with a buyer’s market, I have seen builders stick to the contract to the detriment of losing a deal. I would most certainly ask under that scenario, why not build the transfer tax into the price. Meaning that you should formulate your offer by incorporating the transfer tax into the purchase price. For example, “I will offer the purchase price, but the purchase price offer includes the transfer tax.”

Filed Under: Legal Advice