I truly believe that this will be the next great think for real estate agents and brokers alike, the Purchase CEMA. What exactly is a CEMA? A CEMA is a Consolidation, Extension Modification Agreement or simply put, a way for buyers to save thousand of dollars on New York State Mortgage Tax.
Whether you've ever sold a home or purchased a home in New York you've paid the dreaded New York State mortgage tax, that annoying tax that differs from county to county. In the 5 boroughs of New York City the mortgage tax costs 1.80% minus $25 of the amount of the mortgage up to $499,999. Even more for loan amounts above of $500,000 and above. Now, how can a purchase CEMA help in what is a tough NYC market? Let's look at some numbers.
Say you have a buyer who is purchasing a home for $500,000 and is making a 20% down payment in Queens County. The buyer would be obtaining a mortgage for $400,000. The state mortgage tax would be $7,175. Now let's take a look at how a CEMA can help.
Let's say the seller currently has a mortgage on the home for $350,000. Utilizing a CEMA the buyer would have to pay the mortgage tax on the spread between his/her mortgage amount and what the seller holds on his/her mortgage. Now, instead of the buyer paying mortgage tax on $400,000, the buyer is now paying mortgage tax on the $50,000 difference or $875. The buyer is now paying $875 in mortgage tax as opposed to $7,175 for a savings of $6,300. However, there are costs associated with a purchase CEMA of approximately $1500. The cost could be a bit more or a bit less depending on what the sellers' mortgage company and buyers' mortgage company will charge for the preparation of the necessary documents. In this example, factoring in the costs, the buyer would be saving approximately $4,800 or paying $2,375. Do you think a buyer would be unhappy having to pay $2,375 instead of $7,175?
Hey Anthony, that's great but what's in it for the seller? In addition to now potentially having more buyers since there are less out of pocket costs for buyers, the seller can also save a few dollars as well. The seller can save on the New York State Transfer Tax they have to pay at closing as well. Using the above example, the seller would have to pay $2,000 in New York State Transfer Tax on a sales price of $500,000. Since the seller is now assigning their mortgage, the seller now only has to pay the tax on the difference between the sales price and the amount of the mortgage they are assigning. Again, using the above example of a sales price of $500,000 where the seller has a mortgage of $350,000, the seller is paying the tax on $150,000 instead of $500,000. The seller is now paying $600 instead of $2,000 and saving $1,400.
The buyer saves $4,800, the seller sells his/her home and saves $600, you have a sale and everyone is happy. Sounds easy, doesn't it? Well not quite. First of all, everyone has to be on the same page. The seller must be willing to help the buyer, the sellers' mortgage company must be willing to assign the mortgage tax, the buyers' mortgage company must be willing to accept the assignment, and the title company must be on board as well as the buyers and sellers attorneys. Most importantly, the person taking care of the purchase CEMA must be knowledgeable and have experience. If done correctly, you can expect a 90% success rate. However, it's important to look at all the numbers as there will be times when the savings on a CEMA are minimal and may not even be worth doing.
It's important to partner with someone who knows what they're doing, whether or not a purchase CEMA can be done and whether or not if it will be beneficial to have it done. If you need any more information on how to use purchase CEMA to increase your listings or are looking for a purchase CEMA partner to increase sales, feel free to contact me through my profile, call my office at 718-381-2424, or call me on my cell at 917-650-6042.