Should we vote to approve our NYC co-op board's proposed 2% flip tax (transfer fee)?
August 18, 2012 8:18 PM   Subscribe

Should we vote to approve our NYC co-op board's proposed 2% flip tax (transfer fee)?

(Anonymous because of the financial details)

6 months ago, my wife and I moved into a 2 bedroom co-op on the Upper East Side in Manhattan with a purchase price of about $790,000. Our maintenance is $1,700 and there's currently a $200/month temporary assessment, scheduled to last another year.

Recently, we've received mail from the board about a proposed 2% flip tax/transfer fee they'd like to impose on transactions going forward. This would be paid by the seller. Besides the mail, members of the board have spent time in the lobby during peak times and have fairly aggressively encouraged residents to approve the fee. They've approached my wife numerous times about it (nicely, but strongly).

The mail explains that while the building's financials are OK, they're not as good as the board would like and the lack of a transfer fee going forward my require maintenance increases or further assessments.

This is our first home purchase and we don't plan on being here more than 5-7 years. By my math, the flip tax would cost us around $16,000 ($790,000 * .02, assuming no change in home value). A $300 maintenance increase (that number is just a guess-- I have no idea what it would actually be or when/if one would be approved) would cost us around $18-$22,000 over a few years, but paid monthly and of course, we'd probably see maintenance increases even with a flip tax.

Does anyone have advice around this? Will a flip tax make it harder for us to sell our apartment later? Are we risking the board's unhappiness if we reject it-- and does that matter? Would all this be outweighed by the better financial health of the building?
posted by anonymous to Home & Garden (15 answers total)
A definite hike on selling, vs a threat of a hike? Take your chances with the threat.

And yes, that "tax" would sure as hell keep me from buying. Then again, so would having an HOA in the first place, so take that as you will. :)
posted by pla at 8:56 PM on August 18, 2012 [1 favorite]

Have you looked at the financial records of the co-op? When they say it is not so bad, but they want to be in stronger shape, what do they mean? What is the actual metric of their goal? What do they estimate having the 2% transfer tax will do/raise? How much cash do they have in the bank? What are the monthly operating expenses? What is the buildings debt? What are the tax implications of the transfer fee? The list goes on.

If it were me, I would consider the fee if I knew a lot more of the details of why, what they hope to achieve and if I could see how the place's money has been spent in the past. If it were for good reason, and I would not just take their word of "trust us" on this, I would vote for it, but without that information, I would vote "no". They can always provide the information and ask for a revote, but it will be darn hard to eliminate the fee later.
posted by JohnnyGunn at 9:24 PM on August 18, 2012 [3 favorites]

A flip tax is a strict transfer of wealth from those who want to leave to those who plan to stay. If you're planning on leaving, you're pretty much voting to decrease the value of your apartment by $16,000, plus 2% of any appreciation that happens down the line, plus the loss of appeal to potential buyers. Psychologically, I would expect a flip tax to be a bigger red flag to buyers than a marginally higher maintenance. Transaction costs in NYC are already exorbitant; driving them higher directly harms your property value.

Older residents of the building love a flip tax because it encourages stability (and they don't plan to move). It's a transfer of your money to them.
posted by zvs at 11:40 PM on August 18, 2012 [2 favorites]

The OP states that the flip tax would be paid by the seller, so I'm not sure how it would scare off potential buyers - unless the buyer would be staying a short period, having to pay the flip tax of their own. Or if the seller would have to disclose the tax as part of the sale.

I agree with JohnnyGunn's list of items you should investigate. Another factor to consider when making your decision should be the frequency of the turnover in the building. If the turnover is infrequent, the HOA would probably stand to take in more with a maintenance fee increase to be paid monthly instead of a one-time tax on the sale of a unit.
posted by youngergirl44 at 12:18 AM on August 19, 2012

I don't live in A NYC co-op, but in a similar situation where all owners pay a monthly "management fee" that covers operations and maintenance of the building's exterior and common areas (probably with a lot fewer constraints than would apply in a co-op - new owners are not vetted by the owners board). A few thoughts:

1 - who pays the 2% is in reality determined by the market. If the market is hot and your building desirable, you should be able to raise the price to recoup the "flip tax". If not, you will end up netting less from a sale.

2 - in my experience, when someone in my building sells, the new owner invariably does a couple monts of renovation work, which can be noisy and generally a nuisance to residents. The flip tax seeks to penalize this type of thing, which to me is a positive (it may not be for you).

3 - As the others said, check into the financial situation of the co-op. They really can't guarantee income from the flip tax, but the bills will still come due. So you may end up paying both monthly and on your way out.
posted by clark at 1:31 AM on August 19, 2012

I'm not sure how it would scare off potential buyers - unless the buyer would be staying a short period, having to pay the flip tax of their own.

Very few people purchase a co-op (which is generally a smallish apartment) with the intention of staying there forever. One generally expects to eventually either move to a different locale, or upgrade to a house using equity from the apartment. As zvs said, the flip tax significantly decreases the value of your apartment. Many years ago, when I started thinking of purchasing a co-op, a work colleague advised me to NEVER purchase anything with a flip tax. There are plenty of properties without such fees.

Or if the seller would have to disclose the tax as part of the sale.

I am certain the flip tax must be disclosed to potential buyers. To not do so would constitute fraud.
posted by RRgal at 5:23 AM on August 19, 2012 [1 favorite]

Very few people purchase a co-op (which is generally a smallish apartment) with the intention of staying there forever. One generally expects to eventually either move to a different local or upgrade to a house using equity from the apartment.

Except: NYC, in which case this assertion couldn't be more wrong. People here live in coop apartments for multiple decades (effectively their entire adult lives).
posted by slkinsey at 5:47 AM on August 19, 2012 [3 favorites]

Our coop in Brooklyn has this flip tax. The idea is that it it's good for the financial health of the coop, keeps our maintenance a little lower, and discourages rapid turnover. We see the building as a stable community, and we don't want people to try and use the units as a way to make a profit on the real estate market; we want them to be making a relatively long-term commitment.

But our units are also much less expensive than yours to begin with, which means the tax is also a much smaller amount of money, fwiw.
posted by Narrative Priorities at 6:02 AM on August 19, 2012

zvs's answer here is the correct one. Presume for a moment that the transfer fee is necessary for the sustainment of the building. If that is the case, then some amount of money needs to be generated in some way or another. The only question is how that money should be paid. A transfer tax makes those who "frequently" change residences the payee. An increase in maintenance costs makes everyone the payee. Since you do not expect to stay in the coop for an extended amount of time, it is to your advantage to reject the transfer tax.

I also agree with other posters questioning the need for the tax. I don't understand what "the building's financials are OK, they're not as good as the board would like" means. There are only three reasons the coop would want to do this that I can think of (perhaps others can think of others):
  • The coop is lacking a sufficient reserve fund and the board wants to fill it up. This is a reasonable expense and something a transfer tax makes some amount of sense on because the matter doesn't need to be dealt with immediately.
  • The coop can't afford current expenses. In this case, there should be a more detailed discussion about what's going on. Most importantly, a transfer fee is not the way to handle this, because if no one moves, the coop raises no money.
  • The coop wants to spend more money on something they are currently not spending money on. This is not inherently bad, but, again, I'd want to know what it is before I agreed to pay for it.
It should be noted that in all of these cases, these can be paid with either a transfer tax or a maintenance fee increase. You should figure out why they specifically want a transfer tax; I think the answer will be that the board is full of people motivated to keep the coop the way it is and also people not willing to move. In other words, I expect the coop board is not the one that pays this tax. I'm suspicious of anyone who attempts to raise money but doesn't themselves pay that money.
posted by saeculorum at 7:18 AM on August 19, 2012 [3 favorites]

If, though, the transfer taxes of others who would sell within 5-7 years would address maintenance shortfalls or pay for building upgrades that increase the value of your property by more than $16k, or even by more than ($16k minus whatever monthly fee they'll institute if this transfer tax doesn't pass), than it may be to your benefit.
posted by salvia at 8:43 AM on August 19, 2012

It is my understanding that in NYC a lot of co-op apartments have the flip tax in place already.
posted by mlle valentine at 8:58 AM on August 19, 2012

If you are planning on being a short-term resident, then a flip tax does not benefit you in any way. That being said, it is true that many stable co-ops in Manhattan have a flip tax in place, and the NYC market is so unique that you can disregard a lot of what is considered standard with regards to co-ops and HOAs in other parts of the country. So I'd vote against it, but wouldn't be too upset if it winds up passing. I actually don't think it'll affect your selling price all that much; lower maintenance = higher selling price, so I doubt you'll wind up losing money on the transaction.
posted by snickerdoodle at 10:03 AM on August 19, 2012

I think the answer here is that, it depends:

A: For people in NYC who would like to have relatively stable residency in their co-op, a flip tax is a good thing because it discourages turnover.


B. For someone who does not plan on being among the stable residency of the co-op and would like to turnover their apartment after a relatively short period of time, a flip tax is a bad thing because it penalizes turnover.

If you want to vote strictly your own self-interest, the clear choice is B. Especially if you don't plan on living there very long, you probably don't even care that much about the financials of the co-op. On the other hand, it strikes me as likely that part of what made that co-op a nice place to live and attractive to you is relatable to the culture that arises from long term residency. So overall, if you want to vote for what's best for the co-op, the clear choice is A.
posted by slkinsey at 11:35 AM on August 19, 2012

If I were considering buying somewhere with this rule, once I found out about it (likely after having made an accepted offer and now reviewing the HOA agreement--a requirement I'd definitely have in the offer) I'd counter with an offer 2% below what was accepted due to the unacceptable terms.

If you never plan to mortgage or sell, this is perfect for you. Of course, consider you will be paying property tax on that 2% you will NEVER get from a buyer for the rest of your life. Unless you're retired, even if you stay you'll end up on the negative side.
posted by shepd at 2:25 PM on August 19, 2012

Just in case you haven't fully investigated, it's worth pointing out that in some buildings these 'flip taxes' are calculated as a percentage of the profit from a sale, and not from the full sale price. In case that happens to be the case here and in case that might change your calculations.

(Also, to shepd, above, in an NYC co-op your property taxes are paid for through your monthly maintenance fee and don't correlate at all to the sale price of your specific apartment/shares.)
posted by nobody at 3:13 PM on August 19, 2012

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