Her clients, both buyer and seller, were ready to go into contract on the Upper West Side three-bedroom, says Halstead broker Amy LaPeters. Then word came from the co-op board that a flip tax was in the works for the building, and this particular sale would be affected. Should it pass, LaPeters was told, the seller would have to part with 8 percent of the gross sale price of the apartment—about $72,000. He backed out. “He wouldn’t have lowered his asking had he known he’d have to pay [that much],” explains LaPeters. (The deal finally went through later, when the tax was lowered to one percent.)
Soon, many other sellers may find themselves in similar straits. Real-estate experts say a spate of co-ops, the Carlyle House (pictured) among them, are considering instituting flip taxes—those fees, usually about 2 or 3 percent of the sale price, paid by an owner upon the sale of a co-op apartment. Many buildings have had them in place for years to discourage quick turnover (hence the name; traditionally, many of them applied only to apartments sold within a year or so of purchase). But now, says Corcoran broker Julia Hoagland, “buildings are saying to themselves, Hey, everyone’s making so much money, why not take a piece of that for our reserves?” Not that enacting a flip tax is easy: Shareholders have to vote it in, and proprietary leases must be rewritten.
Nevertheless, co-ops appear to be willing to go through the hassle. Residential expenses, especially for energy, have risen dramatically, and the strict façade-inspection laws have added costs as well. “Almost every building in New York has had a maintenance increase for fuel oil and staffing,” says Warburg Realty’s Judith Thorn. Rather than jack up the monthly fees, co-ops are turning to flip taxes. “Assessments are painful to everyone, but flip taxes appear only when there’s money on the table from a sale,” explains lawyer Arthur I. Weinstein, who helped invent the flip tax in the seventies, during the first boom of co-op conversions. “They’re politically more acceptable to the shareholders.” But not always: “You have people selling in the next five years who think it’s an extra expense,” says Thorn, “while people moving in think it’s good because it’ll help keep the maintenance under control.”