Real Estate

It’s a Bargain! For Now.

Those tax breaks that kept condo fees low? They’re expiring—and buyers are noticing.

By S.Jhoanna Robledo
Published Oct 25, 2009

Illustration by Peter Arkle

When you’re buying an apartment, it’s rarely the absolute price that determines what you can afford. It’s the monthly nut: the combination of mortgage payment and monthly fees of the co-op or condo. Almost without fail, high fees depress a selling price, and low maintenance raises it, because the owner’s total every month will even out. Even though buyers and sellers both know that fees rise a little year to year, any sign of a forthcoming spike is a red flag. And because of a bit of tax law that looked relatively benign a couple of years ago, that’s about to happen in thousands of apartments—in an already-difficult year.

Consider the story of one Upper West Side two-bedroom. It was exactly what broker Douglas Heddings’s client wanted. Built four years ago, it was smartly laid out and had Hudson River views, and taxes were $600 a month. But in 2014, when the abatement runs out, they will jump to $1,550 a month. (Or even more if the city hikes property taxes again.) The preponderance of new condos built during the past decade have similar tax abatements, most of which will end in the next decade. Even assuming a steady real-estate recovery, that’s a big wet blanket.

Real-estate attorney Steven Wagner says he has always advised clients to look at abatements closely before they buy in the first place, but not every buyer does. And many buyers didn’t care, anyway: A few years ago, reduced taxes became an incentive to “stretch” for a pricier property they may not otherwise have been able to afford. Some expected values to keep ascending, and if they couldn’t afford their monthlies anymore, they could always refinance or sell. Overstretched buyers may have viewed them “like an interest-only loan,” says Nan Shipley of Rand Realty. “Come and buy me now, and don’t think about the consequences.”

Halstead’s Denise Rosner says she tells her stubborn sellers that adjusting their expectations in these situations is unavoidable: “It’s like, Eat your vegetables.” The sellers of the condo Heddings’s client wanted agreed to knock nearly $200,000 off the asking price when they realized he was serious. There’s no reason to avoid abated apartments, of course, but Wagner does suggest that buyers who intend to flip within a couple of years “should ask themselves, What if I can’t?”