How Gross vs. Net Purchase Price Impacts Buyer Agent Commissions

By Sonja Gosine, Spokesperson at Hauseit® / December 2, 2020

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.

Pro Tip: Estimate your buyer closing costs for a new development purchase in NYC with Hauseit’s Interactive Buyer New Development Closing Cost Calculator.

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 and type of 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 while negotiating with a buyer.

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 earlier calculation.

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 %.

Pro Tip: Estimate your seller closing costs in NYC with Hauseit’s Interactive Closing Cost Calculator for Sellers.

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%.

The buyer agent commission on new developments in NYC is based on the net purchase price which excludes any fees or credits covered by the developer.

Each new development has its own co-brokerage agreement which a buyer’s agent must sign as part of the registration process for a prospective purchaser.

Here is an example of the commission language in a typical new development co-brokerage agreement:

2. Compensation.

(b) In connection with the prospective sales of Units to Prospects solely procured by Outside Broker (and any co-broker of Outside Broker, if applicable), and subject to all other conditions contained in this Agreement, Outside Broker agrees to accept a brokerage commission (“Commission”) equal to three percent (3%) percent of the Net Purchase Price (as such term is defined in Subparagraph 2(d) below) for each Unit.

Owner shall have the right to change the amount of the Commission payable to Outside Broker with respect to one or more Units at any time by notice given in writing to Outside Broker; provided, however, that any such notice shall not affect the amount of the Commission payable to Outside Broker with respect to a sale of a Unit to a Prospect who has submitted a Purchase Agreement signed by such Prospect or other written offer, received by Owner prior to Outside Broker’s receipt of Owner’s notice.

(d) The computation of the Commission to be paid to Outside Broker in the event of a sale shall be based solely upon the Net Purchase Price of the Unit or Units. For purposes of this Agreement, “Net Purchase Price” shall mean the purchase price set forth in the applicable Purchase Agreement less any discounts and rebates of common charges or real estate taxes and the payment or crediting of any fees, costs or taxes (including transfer taxes and the New York State Mansion Tax and/or other closing costs generally considered the responsibility of purchaser pursuant to the Plan) by Owner, its principals or lenders. “Net Purchase Price” shall not include any additional or extra payments made with respect to construction or other work in the Unit, upgraded or additional appliances, decorations, furnishings or other improvements within the Unit, architectural or design fees or charges or similar fees, or any payments in respect of any superintendent unit at the Property.

Pro Tip: Calculate the Mansion Tax on your NYC home purchase with Hauseit’s Interactive Mansion Tax Calculator.

Under the terms of this New Development co-brokerage agreement, the following items are deducted from the contract price to compute the net purchase price and associated buyer agent commission amount:

● Common Charges or Real Estate Tax Credits:

For example, a developer may agree to credit the purchaser 1 or 2 years of monthly common charges, monthly taxes or both.

● Sponsor Attorney Fees:

Purchasers are customarily responsible in the case of new developments, but sponsors (developers) often agree to cover it.

● Working Capital Contribution:

Most new development condos ask purchasers to contribute 1-2 months of monthly common charges towards the building’s reserve fund.

● NYC & NYS Transfer Taxes:

Combined NYC and NYS Transfer Taxes are between 1.4% and 2.075% of the sale price.

● Mansion Tax:

The NYC Mansion Tax ranges from 1% to 3.9% and applies to purchases of $1 million or more.

● Any other fees, costs or taxes paid by the seller.

If a purchaser agrees to pay the Residential Manager Unit Contribution (as is customary for new developments but still negotiable), this amount is not added when computing the net purchase price.

In other words, a buyer’s agent does not earn commission on the amount of the super apartment contribution paid by the purchaser.

Conversely, if the sponsor agrees to cover the Residential Manager Unit Contribution, this is deducted from the purchase price when computing the Net Purchase Price.

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