How Does Gross vs. Net Purchase Price Impact Buyer Agent Commission on a Real Estate Purchase?

How Does the Gross vs. Net Purchase Price Impact the Buyer Agent Commission? Learn More: https://www.hauseit.com/gross-vs-net-purchase-price-buyer-agent-commissions/Show more

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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 https://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%.

Save 2% When Buying in NYC: https://www.hauseit.com/hauseit-buyer-closing-credit-nyc/
Save 6% When Selling in NYC: https://www.hauseit.com/agent-assisted-fsbo/
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