The "Flip Tax"

Creative Financing or a Coop "Cop Out"

The flip tax is a transfer fee that many new york coops impose on shareholders. In the late seventies and early 80's when many rental buildings converted, huge profits were being made by former renters who bought their units at inside prices and then resold them. Called "flipping" The boards decided to impose the transfer fee and call it a flip tax on sellers to disuade flipping.

Due to high oil costs, insurance, and increases is most expenses many buildings need to buid their reserve fund and are trying to impose flip taxes. In order for the flip tax to pass 2/3 of the shareholders have to vote in favor of it. It requires a quarum. An absent vote is a no vote.

Condo and condop buildings have many investor owners from out of town making it difficult to pass.
There are several ways they try to impose the flip tax. There are arguments on both sides for every type. In my opinion none are good for sellers.

In my opinion it is better to help pay the buildings expenses when you live there and can enjoy the improvements and not when you sell. Why should a seller give a going away present to the coop because the coop is not fiscally disiplined.

It is any easy way to get 2% sometimes 3% of a unit's sale price. The average apartment in Manhattan is over $1 million. Do the math. Buildings have figured 5-10 transfers a year what a nice windfall for them.

1. A percentage usually 2% but sometimes 3%
2. A flat fee
3. Percent of profit
4. Dollar amount per share

Management companies and boards lobby the shareholders why a flip tax is good. They argue if they have this reserve fund from the flip tax they won't have to raise maintenance or have asessments.

Elederly people planning on leaving the apartment to their children don't care as that is an exemption. People who recently bought and have to be relocated feel it's unfair as they have not been there that long. Long time residents feel they stuck it out and have already paid for all assesments over the years.

The only real fair way I beleive is per share. The way the shares were allocated in the offering plan. So if you made renovations to your apartment and or hired a great real estate broker who sold for a higher price than other apartments with the same amount of shares you deserve that profit not the building.

Buildings need to be managed better. There are so many ways to cut back. Boards should be more accountable to shareholders. Costly mistakes the board made on renovations, refinancing at high rates with prepayment penalties etc. should not be the resposibility of a seller. I would prefer a maintenance increase or an assesment over a flip tax. Pay as you go not when you go.