By Daniel Akerman, Listing Specialist with the Manhattan Home Team at Keller Williams Realty Landmark II.
One of the many closing costs that sellers and buyers may come across in the sale or purchase of a New York City co-op apartment is something called the “flip tax.” In this article we’ll take a quick look at what the co-op flip tax is, how much the co-op flip tax costs, who pays the co-op flip tax and more.
What is the “flip tax” in NYC co-ops?
The ironic thing about the so-called flip tax is that it isn’t a tax at all. Taxes – whether they are a sales tax, a property tax, income tax, etc – are charges levied by a government entity, like the city, State, or federal government, usually as a percentage of some base value. What is generally referred to as the “flip tax” is actually a fee charged by a co-op upon the sale of one of the units in the building, or, more accurately, the sale of the shares associated with that unit.
Who pays the flip tax in a NYC co-op sale?
Generally speaking, the flip tax is charged by the co-op to the seller of the shares, but not always. There are instances where the flip tax is actually charged to the buyer, though it’s relatively rare. However, this is always negotiable between the buyer and seller. In a building that charges the flip-tax to the buyer, a seller may choose to pay that charge in order to attract buyers, or the buyer may negotiate it with the seller in order to make the purchase possible. Less common would be for the buyer to cover a flip tax that is charged to the seller, as they have little incentive to do so in most situations, but the point is that, at the end of the day, a co-op won’t really care WHO pays the flip tax, as long as it gets paid by somebody. As with any other term of a sale, it’s important it be specified in the contract agreed to between the buyer and seller.
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What is the flip tax for in NYC co-ops?
A flip tax is one of several ways that a co-op keeps their reserves in good health. Every co-op has operating expenses and generally wants to keep a healthy amount of reserves available for emergencies, capital improvements, and general operating expenses. The flip tax is one way a co-op funds those reserves – the other main ones being the monthly maintenance payment paid by shareholders and special assessments that are sometimes levied.
How much is the flip tax in NYC co-ops?
There is no one answer for this.The amount of the flip tax will vary depending on various factors – most importantly, the number of shares associated with the unit and the manner in which the flip tax is calculated. Some of the ways flip tax can be calculated are:
- As a percentage of the sale price
- As a percentage of the seller’s net profit
- A dollar amount per share
- A flat fee or dollar amount.
And some buildings don’t have any flip tax at all! Given that every co-op is unique, and every co-op distributes shares differently, it’s impossible to make generalizations as to the actual amount that will be paid in flip tax. As a seller or a buyer, it is important for you to know about the flip tax in your building or the unit you’re interested in purchasing, and a good agent should always be asking about this.
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How is flip tax in NYC co-ops calculated?
As mentioned above, there are many ways the flip tax can be calculated. Perhaps the most common ways that flip tax is calculated is as a percentage of the sale price – generally in the 1% to 2% range – or as a dollar-per-share amount. It’s less common to see flip tax calculated based on the seller’s net profit – as this can vary widely depending on multiple variables – or as a flat dollar amount, since this would disadvantage those selling or buying a unit with less shares. And, again, many co-ops don’t have any flip tax at all.
It’s important for sellers to understand the flip tax details, as it will have a direct impact on their bottom line when selling their property. We always consult with sellers and their co-op management company to get the pertinent information on the building’s flip tax in order to best help our sellers, and help them understand their walk-away dollar after all closing costs. It also can impact how you market or price a NYC co-op apartment.
For buyers, understanding the flip tax, who pays it and how it’s calculated is equally important. If it’s a closing cost to the buyer, you’ll need to know that and understand how it impacts your ability to close. It also may impact negotiations with the seller or the desirability of the unit. And, even if it’s payable by the seller, that will be important information for the buyer as, they too, will one day become a seller in the co-op.
Can I avoid paying the flip tax in my co-op?
Maybe. If you’re lucky enough to be buying or selling in a building that does not charge a flip tax, then yes! But if the building has a flip tax, then that flip tax is going to be paid by SOMEONE. The question of who really boils down to what the buyer and seller are able to negotiate, and that will largely depend on market conditions. In a hot seller’s market, a seller may be able to get the buyer to pay their flip tax. By contrast, if it’s a buyer’s market and the building charges the buyer, the seller may need to cover it just to make a sale happen. It all depends on the particulars in the co-op, the market conditions, and the skill and ability of your agent to negotiate on your behalf.
As an experienced agent on our team and a Manhattan specialist, Daniel Akerman has the experience and negotiation skills to help you understand flip tax and all the other factors that may impact your NYC co-op sale. If you are considering selling your co-op apartment and would like to schedule an interview with Daniel or ask questions about the sale process, you can reach out to him directly at email@example.com