Flip Taxes- How They Break Down, How to Negotiate Around Them, When They Become A Problems, How to Advertise Them

scottharris

New member
I posed a question to John and Noah about flip taxes- how many are No Flip Tax, 1%, 2%, 3%, 4% and who is supposed to pay them. John came back with this:

"It's not a field we're given in RLS, so I pulled listings from Jan 1, 2020, that mention a flip tax: 1,144... pretty common! I extracted the given flip tax %s and the range is 2% to 5%, with an average of 2.5%. By far the most common is 2%.

Flip Tax
% of Listings with Flip Tax
1%​
5%​
2%​
63%​
3%​
17%​
4%​
1%​
5%​
13%​

My Questions are these- could it be that even 4% don't have a flip tax? And is that even a good thing? Further, when buyers are looking at a seller-pay flip tax, is that really factoring into the discussion? We had a broker try to negotiate the agreed-upon price when they learned of a VERY STANDARD seller-pay 2% of sale price.

Are you seeing buyers try not to pay buyer-pay flip taxes right now in this climate? Is it only the really egregious ones that are causing that reaction? And do people advertise when the seller pays the flip as a beneficial attribute? Lots of questions. Curious to get your feedback. Thanks!
 

David Goldsmith

All Powerful Moderator
Staff member
You left out whole categories:
Buildings which charge a percentage of profit and buildings with a per share transfer charge. And even though a number haven't been collecting them most HDFC Coops are supposed to be charging 2 flip taxes totalling 70% of profit. I'm not sure where you're coming up with 4% of Coops don't have flip tax?
 

John Walkup

Talking Manhattan on UrbanDigs.com
Yeah it's tricky! Unless you have rock-solid building attributes, you have to sample listings. While I'm sure there are some buildings out there where there is no flip tax, I have not run into them. 2% seems to be the rule. Who pays, on the other hand, is up for debate!
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
Great discussion. The data is always tough on these. Also, the market pulse chart prob plays a role in whether buyer or seller pays the flip tax. I always looked at it as a sell side closing cost that the seller attempted to pass on to the buyer during negotiations. My buyers always hated it when this came out after the first bid was introduced. Which brings me to the importance of transparency. If this fee is disclosed, it ultimately becomes part of the negotiation. In weak markets, sellers usually absorb. In stronger trending markets, I can see sellers passing this on to buy side to get a deal done. The value hit to the unit or building based on a specific bldg policy, is something that will always be a very gray area
 

David Goldsmith

All Powerful Moderator
Staff member
While like almost everything it can be negotiated between buyer and seller, I can't remember seeing more than a handful of Coops which didn't specify "to be paid by" (purchaser or seller) when enunciating what the transfer fee was. And I've seen plenty which were not a percentage of proceeds.

I think any agent who doesn't disclose both what the transfer fee is and who is expected to pay it on their listing is not being transparent (unless it's some relatively minor flat fee or per share amount).

And this doesn't even touch on the one's where it's "percentage of profit" and how they define "profit." Like the one's who don't let owners deduct renovation costs, so if you paid $900,000, spent $400,000 on a renovation, and then sold for $1,100,000 they still have you paying flip tax based on a $200,000 "profit."
 

David Goldsmith

All Powerful Moderator
Staff member
I guess I should also say that in general I don't think flip taxes are a good thing. Coops get dependent on them and they are an uncertain source of revenue. Shareholders and Boards like them because they think it's always someone else paying them, they don't see the downward pressure they cause to sales prices, and they are a source of friction in deals. They are the type of stupid concepts Coop Attorneys recommend because they have no real business sense.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
While like almost everything it can be negotiated between buyer and seller, I can't remember seeing more than a handful of Coops which didn't specify "to be paid by" (purchaser or seller) when enunciating what the transfer fee was. And I've seen plenty which were not a percentage of proceeds.

I think any agent who doesn't disclose both what the transfer fee is and who is expected to pay it on their listing is not being transparent (unless it's some relatively minor flat fee or per share amount).

And this doesn't even touch on the one's where it's "percentage of profit" and how they define "profit." Like the one's who don't let owners deduct renovation costs, so if you paid $900,000, spent $400,000 on a renovation, and then sold for $1,100,000 they still have you paying flip tax based on a $200,000 "profit."
"so if you paid $900,000, spent $400,000 on a renovation, and then sold for $1,100,000 they still have you paying flip tax based on a $200,000 "profit."" -- this is crazy, agreed
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
I guess I should also say that in general I don't think flip taxes are a good thing. Coops get dependent on them and they are an uncertain source of revenue. Shareholders and Boards like them because they think it's always someone else paying them, they don't see the downward pressure they cause to sales prices, and they are a source of friction in deals. They are the type of stupid concepts Coop Attorneys recommend because they have no real business sense.
I always looked at flip taxes as a way for the corporation to 1. keep ccs low, 2. pay off MCI, or 3. Keep assessments low during MCI...I feel there are other ways for corporations to optimize their balance sheets. For example, how many buildings can do a refinance on a building loan right now and get a better rate than previously? Unsure about lending velocity or appraisals for lending in this area, but I would think if you can get a loan today, do it immediately and save some $$ that can be passed on to shareholders or used to build up funds for future mci
 

John Walkup

Talking Manhattan on UrbanDigs.com
True they are an uncertain source of revenue, but it's a source of revenue. And today, when ground floor retail and basement parking garages are paying (or not paying in many cases) less rent, flip taxes are helpful.
 

David Goldsmith

All Powerful Moderator
Staff member
They are the opiate of the masses. What are all the ways flip taxes are superior to capital assessments as a source of revenue?
 

David Goldsmith

All Powerful Moderator
Staff member
Slowing market means less flip taxes collected which will put pressure on Coops which have become dependent on them. With decreased income from retail spaces, increased Real Estate taxes, some pretty big outlays mandated by Local Law 97, not to mention other long term maintenance issues and all costs going up due to inflation some buildings will see large increases.

Habitat Magazine

New York's Cooperative and Condominium Community

AUGUST 04, 2022
Double-Whammy: Supply and Demand Tumbling for Co-ops and Condos

Sales of New York City co-ops and condos, like all forms of housing across the country, suffered when the pandemic hit in 2020. After a rebound that stretched into early this year, sales are once again on the skids — this time thanks to the recent rises in interest rates which, the government hopes, will tame galloping inflation and avert a recession.

Far fewer people bought apartments in Manhattan and Brooklyn last month than in July 2021, according to new research from the brokerage Douglas Elliman, continuing a decline that began when the Federal Reserve started raising interest rates this spring.

And now, Crain’s reports, the number of homes being put on the market appears to be tumbling too, as sellers decide it’s better to stay put than fetch reduced prices for their apartments. The result: a double-whammy, with buyers reluctant to make bids because of high prices and rising interest rates, and with sellers cool to the idea of accepting lower offers. Supply and demand are trending downward at the same time.

“If sellers believe they are not going to get as high a number as they would have two years ago, they’re hanging on,” says Richard Ferrari, the president of Elliman’s northeastern division. “But prices are not really coming down, which makes this sort of a unique situation.”

Indeed, Ferrari adds, by keeping their condos and co-ops off the market, thus reducing supply, reluctant sellers are basically propping prices and contributing to a vicious market cycle.

While purchases have declined for months, levels of new inventory had generally been stable, making July’s dive a fresh cause for concern. Among the concerned are co-op and condo boards that rely on flip taxes from apartment sales to feed their bottom line. A decline in apartment sales spells a decline in revenue — and will force boards to look elsewhere to make up any budget shortfalls.

Last month, sellers in Manhattan listed 562 condos, down from 677 in July 2021, a 17% decrease. And that drop represents a sharp reversal from June, when sellers then put up 808 condos for sale versus 709 in the previous year, an increase of 14%. Co-op sellers also seemed to pull back on listings, with a 19% decline in July from a year ago. In June, in contrast, the year-over-year drop was just 3%. (cont. below)
In a way, sellers finally appear to be as spooked by recession worries as buyers, who in July continued to show restraint. In Manhattan last month, there were 337 contract-signings, down from 509 in July 2021, a 34% drop, according to Elliman. Meanwhile, in June 2022, the year-over-year decline was 29%, Elliman said, which added a caveat that summer 2021 enjoyed being part of an unusually strong housing market.

The softness in Manhattan’s co-op resale market was similar, with a 43% decline in contracts in July versus a year ago. In June, the year-over-year dip was 30%.

In general, New York’s housing market has swooned since March, when the Fed first raised interest rates, in that case by a quarter of a percentage point. Since then, there have been three more rate increases, including one by three-quarters of a percentage point in late July.

The slowdown in co-op and condo listings and sales may be partly attributable to history. After years of historically low interest rates, homebuyers have grown accustomed to cheap money, and now they may be overreacting to this year’s relatively modest rises in interest rates.

Ferrari attempted to put the disconnect in perspective: “Yes, borrowing costs are higher than they’ve been. But they are still historically low and in line with 2018, which was a normal market.”
 
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