Seller Concerns: What is a Flip Tax and Who Has to Pay It?

Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a home or apartment. Additional questions welcomed to tips@curbed.com. Up now, flip taxes!

Weighing heavily on the seller’s mind may well be the ominous “Flip Tax,” which is basically your co-op’s way of saying, “You’re leaving, huh? Well, pay us some money and we’ll let you go.” Flip taxes (aka Transfer Taxes) are a way of increasing the co-op’s financial reserves without resorting to unpopular maintenance increases or assessments. Don’t worry, condo owners, transfer taxes for you are rare.

So how did flip taxes come about? In the 1970s and 80s, when a bunch of crappy rental buildings were converted to co-ops, they had to make lots of improvements. Improvements cost money, and many buildings were left with very little. The tenants (rent controlled for the most part) could sell their apartments at a huge profit, so they now had funds to contribute and build up the reserves for the future if they left. It’s legally sound for co-ops to charge these fees, but only if they’ve already written out the charges and had them approved in the building’s proprietary lease.

There are a bunch of ways co-op boards calculate flip taxes:

Percentage of the Gross Sale Price
M.O.: Pretty straightforward.
Who loves it: Whoever isn’t paying it.
Who hates it: The people who lost money in the sale.
Set Number of Dollars Per Share
M.O.: Perhaps $15 a share.
Who loves it: The people who bought a loooong time ago.
Flat Fee
M.O.: Perhaps $4,000 a flip.
Who loves it: The people with big apartments.
Percentage of Net Profit
M.O.: Maybe they allow you to subtract apartment improvements.
Who loves it: Anyone who made a profit.

However, it’s not always the sellers who have to pay the tax?lately it’s also been the buyers. Let’s take a look at the way some of our favorite buildings handle flip taxes:
The Dakota: Transfer Fee of 2 percent, paid by the buyer.
834 Fifth: Transfer Fee of 3 percent, paid by the buyer.
740 Park: Transfer Fee of 3 percent, paid by (guess who?) the buyer.

Why are some of the most notorious buildings in NYC charging their buyers? Though it’s a mystery exactly why certain buildings make their choices, Douglas Heddings says, “since the buyer will likely benefit from the spending of those funds (for building improvements, repairs, etc) many buildings believe they should pay.”

The only way to get over this fee is to take a moment of silence for all the people ahead of you who have paid it. It’s a vicious cycle, and one that is not going to be ending soon. Also, make sure your contract identifies the lucky payer.
· Co-op Boards 101: Board Packages, Interviews, and Turndowns [Curbed]
· Curbed University [Curbed]