Fabricated/Inflated Purchase Prices

Neither common charges nor taxes are affected by purchase price. Also, someone would have to pay the transfer taxes on the additional $500k, which isn’t peanuts.

I dont see how this could be done, or done legally.

I don't see how it's legal or what the loophole is because you would have people cheating left and right.
How does the government know you didn't really pay $2.85 and cheating taxes by saying $2.35?

Anyway,assuming the tax base is 1000% always correct, all you have to do is go the unit's deed transaction page in Acris. Page 1 will show all taxes paid. In the fees and taxes section you will see a couple totals of tax paid.

First NYC Real Property Transfer Tax: $ XXXXXXX
then
NYS Real Estate Transfer Tax: $YYYYYY + $ZZZZZZZ.

Just follow the percentage, that number has to represent for the total. It's very easy on over 1 million dollar purchases to calculate as "$ZZZZZZ" represents the 1% mansion tax.

Me thinks the developer has a ton of incentive to pay the not so peanuty transfer taxes... flmao...reminds me of Bernie Madoff and his "finder" fees to his feeder funds... FLMAO...

Another reason, to hold firm to your gunz and do a rent/buy analysis on every single transaction. DON'T LET the BORKERS and SHUCKSTERS GAME THE SYSTEM.

It should be standard procedure for any purchaser's attorney to ask the BOARD/Developer IF ANY unit's transaction price if FULLY reflective of the economics of the DEAL. simple, if they don't answer, then you've got your answer...

FLMAOz...

There was a thread about this a few months ago, but I can't find it. The summary seemed to be that there are loopholes (buyer gets cash back after closing in the form of a renovation allowance or something) that can be exploited, but the city is trying to close them.

Here is another part of the equation that is just awesome for the buyer. The $500K cap gain exclusion, you are effectively getting a $1MM shield in this example. Overinflated price $500K then $500K exclusion.... I think the IRS may wanna jump in on this practice..... FLMAOzzzzzz

very helpful truthskr...and very good points w67th

I as well would like to hear the low down from attorneys as I have in the past come across the 1% mansion tax figure being less than 1% of the sales figure. And the amount was more than "free common charges and taxes for a couple years."
I just downright assumed it was data input error.

This sounds highly illegal. Did truthskr's advice about acris reveal the shadiness?

I'd like to hear what folks like Jonathan Miller think about this sort of thing. Since appraisals seem to be based virtually entirely upon "comps" rather than things like "price-to-rent" ratios these sorts of shenanigans really mess things up!

How about Noah Rosenblatt? Or one (or two) of our broker friends?

Good point Topper - Flash to Noah:

While you and the coder are up to your eyeballs why not hold him for another extra week and have him do a scrape through ACRIS where the mansion tax does not equal 1% of sales figure. Then decide what to do with it, maybe ask some developers for advice.

There was a thread about this where it could be done legally, up to 6% of purchase price, and was being done in a fairly high percentage of deals. But this represents 20% of purchase price, so I would guess it is not legal if true

I am amazed at the lengths some will go and how far the envelope gets pushed to keep the status quo of NYCRE always goes up (wel, except that one time....)

Clearly a lot is on the line to keep market observers in the dark.

...the pool of "greater fools" must be getting smaller and smaller if sellers are resorting to this kind of dishonesty.

not sure of the loophole either. I did see apts get turned down by a board, and a deal reached where a 200K renovation concession was paid by the buyer via the purchase price and returned by the seller after closing. That type of stuff. But this? Dont know much. Sounds illegal to me. Monthly CCs are determined by # of shares for coops or each unit owners percentage of common interest for condos. So doubtful the CCs would rise in a deal like this - why would the offering plan % common interest change for this kind of shenanigans? Shame to hear these kinds of stories.

OIf a lender was involved, then this practice would be a clear case of fraud.

IIf a lender. . . (correcting first word)

Right, the developer could agree to pay the first $500k of property taxes and common fees and insurance and cost for renovation or somesuch?

Thought I remembered seeing one in the Starck, took a while to find but here's one...

PH2E (block 00928 lot 1400)
Listed as sold for $1,400,000 on the contract page (page 9 in the deed docs on acris). But in the right corner "doc amount" column, it shows $1,423,762.
But here's the kicker, the 1% mansion tax paid is $13,240.98 which means they supposedly only paid $1,324,098!
That's 7% off the $1,423,762 number.

To add to the dubious factor, the unit was sold to the broker in charge at the time of building sales.

perhaps they were netting out the broker fee? so rather than the broker buyer paying 1.4mm, and getting a commission, they just netted it out so the broker wouldn't have to pay the extra mansion tax? Also would be advantageous for income tax purposes. I'm just guessing here.

tru, was that a sponsor unit?

printer, very possible.
And what happens if they sell it tomorrow for $1,453,000, do you they pencil in they paid $1,423,762 to uncle sam?....and pay taxes on a gain of only 30K?
Or sell it for $1,223,000, and apply a $200K loss against a gain on another transaction to offset?
It's still fraud.

bob420 ....yes

w67 presents quite a scenario as well.

I have seen several sponsor sales reported all around 7% higher in ACRIS than what was actually paid. Other units in same buildings that were not sponsor units reflected the exact sales price.

7% higher are all the closing costs, so that "makes sense". 20% that's something beyond "reasonable"

why would acris report 7% higher sales price for sponsor units but not regular sales?

bob - perhaps b/c for sponsor units the buyer pays the closing costs, so they are added to the price? Certainly for capital gains purposes that is legitimate. I don't know the exact accounting, though, so I can't say whether this is legit or shady.

Well bob420,that's the point, that developers (sponsor sales) are inflating sales price figures (or cheating taxes or both)

BTW, please post 'em if you got 'em (bob420).
{Coz it's real time consuming to spot check acris pages with spot sales in spot buildings and SE doesn't pay me enough. :) }

If the buyer pays the NYS/NYC taxes, then they're considered part of the consideration, and there's some tax-on-tax involved. They come to something like 1.825%, but I don't remember whether that includes the mansion tax.

On new-condo closing lists, the odd amounts mean the buyer paid the taxes. If an even-ish amount, then the sponsor did.

I don't know how seller concessions work as far as reporting goes. They're very common outside NYC (e.g. all those buyers on HGTV who can't scrape together closing costs, so have the seller pay them) but somebody here (Sunny?) said the banks impose a limit of 5% or something like that.

Printer
Well my example at Gramercy Starck, a recently new development, every initial sale was a sponsor sale.
I didn't check every apartment in the building but at least the 10 units prior that I checked til I caught PH2E all matched properly to the tax paid.

If the buyer did pay the transfer taxes and such it would make sense. But in the cases I know of they didn't.

Really helpful info all....so If we are interested in buying in a building and want accurate comps, we should make sure we look at the acris database and use the mansion tax paid to calculate the actual purchase price of the unit...we should be able to build accurate comps on a price paid per sq foot basis...I wish there was a db that already did this, but I guess it shouldn't be too hard ... And really only need 6 or so of the latest transactions

Is acris available to the public or is it only accessible to agents?

It's public: http://www.nyc.gov/html/dof/html/jump/acris.shtml

thx NWT...very helpful...i see the records and the mansion tax paid per turthskr10's post....i am way more educated

So not to beat a dead horse, but are any other public records filed anywhere other than what's in the acris database showing purchase price and mansion tax etc

The trick, apparently: an all cash transaction, no loan involved ...still baffled as to how this loophole is open, but apparently it is...guess the moral is if the buyer pays all cash (likely a fair number of deals), it's possible to disguise the real purchase price....buyer beware cuz previous transactions may not really have been done at the price in acris

I would not readily believe this. Tax evasion and money laundering issues come to mind, which the government takes very seriously. Isn't that how they got Al Capone?

You know, real estate pros sit around and tell these stories.

I know this board is not where people come to hear that they should hire neighborhood or building specialists, so let me just say this:

If you think you're in a non-transparent segment of the market, you should be working with an attorney who can tell them to you -- those are the lawyers who may charge an extra thousand bucks but in this case their expertise is worth it.

Also, I'm not a tax attorney, but the problem with concessions (in practice) isn't generally fraud, it's tax. If, as above, broker really did net out their fee from the purchase price of the apartment, the sin in the eyes of the IRS is that's "imputed income" -- and yes, they will find it and get their taxes on it.

ali r.
DG Neary Realty

Very good advice Ali G.

http://www.youtube.com/watch?v=HqZKW1WEVlM

@ali r..... let me get this straight, r these the same "re pros" that told everyone to not buy in 2007 bc of the bubble, or the same ones who told the lemmings, bid after june 30th? or conflicted ppl like yourself that wears a broker hat and financial advisor hat? Let's see, if a person wants to buy a $500K studio for 3 yr stint in nyc and you are her financial advisor, does the 6% of $500K win or the $500 financial advisory fee? FLMAO.

@UD, I can't believe you guys gave Urban a pass on his stmt "$200K" is okay but $500K is ILLEGAL! WTF, so tell me UD at what # of jews exterminated during WWII, did the "genetic cleansing" become a "genocide?"

GET A CLUE.... PPL.

It's not illegal because the government doesn't care. They get paid their tax amount based on the reported price, so as long as someone is willing to pay the additional taxes you can report whatever higher price you want to.

If you were to report a lower price than you actually paid then you'd probably get in trouble . . .

I think this probably happens most often in coops, where the coop board blocks sales when prices get too low. In that case the seller and buyer agree to some sort of kick-back and usually divide the excess transfer tax 50/50. Again, the coop board doesn't care, because their comps are affected by the reported price, not the actual price.

yep, sounds like a very relative analogy u point out there. And a good interpretation of my statement

did a little more investigating...heard through another from accountant and lawyer who have done this repeatedly in the past...apparently no imputed income problem (a concession) and no cost basis problem because owner simply uses the lower price paid as cost basis upon sale....apparently only done in all cash transactions....agent from a major brokerage said they have done 27 of these this yr alone...sounds like a fairly widely used practice in all cash transactions and there are certainly plenty of those in the city...net net, 1) comparables are highly suspect (sponsors, sellers etc have the power to disguise true sale price) 2) this transaction was completed at a 23% discount to original list and 18% discount to price on deed in acris 3) the mkt is not transparent in any real sense, so prob best to low ball bids to see where it gets done, though prob have far less hope of success if not paying all cash 4) before i hire a broker, they better be familiar with this practice...still amazes me and whatever loop the sellers are exploiting likely should be closed, but for now, its open ...(i understand the skepticism of folks reading this thread...i would be skeptical as well if i didnt know what i know...my advice is dig around for yourself with professionals to see if you can verify)

That would seem to function like a version of a 1031 exchange mini me.
Im sure there is a bit more to it as the government generally doesn't like plebs dictating when they'll pay on what they fully owe on some future date.

I believe Hitler famously put out "positive" newsreels of how the war was going, the Third Reich's victories and accomplishments got zanier and more victorious the closer the American and Red army got. In fact, the Germans declared victory at the exact moment the Red and American soldier shook hands in the middle of Berlin!

Any deal that looks suspect, and I have seen some closing where I've said WTF! (meaning the pricing was close to 2007)... is really really one of these 27 final "positive newsreel" kinda marketing ploy by ALL the entrenched "invested" players.
1) buyer gets 25% off;
2) coop can pretend they haven't lost said 25% off;
3) borkers get paid on actual economics;
4) seller gets approval from board;
5) attorneys collect extra fees for the shenanigans.
I suspect hundreds more if you extrapolate sirwinston's sample to the entire manhattan mkt.

Remembe, UD and Ali two long time SE posters and professional RE brokers have admitted these things happen all the time.

The takeaways.
1) NYC RE is in final phase of capitulation;
2) Don't believe closing that appear to have 2007 prices (who would pay bubble prices?);
3) If you are all cash, a minimum of 25% off is in order;
4) it follows, => Cash is KING;
5) DON'T be a follow on Lemming, DO NOT USE a suspect closing to negotiate against yourself;
6) ALL PARTIES involved believe/know nyc re will continue to decline, otherwise WHY NOT WAIT A YEAR?

You are welcome, SE fans....

truthysker... well no ONE is gonna risk their license for one deal. So it follows everyone is relying on each other to report the correct "economics" of the deal to the IRS. And if there is an audit, the closing is very easily re-created using actual chks in and out. So it seems to me, the ONLY reason to do this is the put out a HIGHER price for the follow on lemmings.

So let's take a $1.5MM listing. cash sale, for $1MM. At closing, buyer cuts chk for $1MM plus an unfunded $500K chk. The seller immediately cuts an unfunded check for $500K back to buyer... an attorney "blesses" the transaction and okays it for Borker and Co-Op to say $1.5MM, or at least not "raise' legal objections. Both unfunded checks gets ripped up by a third party in another room.

See, now the economics are such that seller reports $1MM as sale price, buyer can state $1MM for cost basis, borkers get paid on $1MM sale, attorney get extra $500 for not "objecting" and CO-OP board immediately lists their apartments for $1.5MM. SEE... so so easy.

And if IRS audits, they will base their taxes on the $1MM and not some "closing" doc on ACRIS.

Dubyasixsev

You know, "no ONE is gonna risk their license for one deal" is something I wouldn't hesitate to agree with up until 2 years ago when an attorney forged my brother's name on a deed transfer, but I do still have to "generally" agree.

And looking back, I see I misinterpeted Sir dubya's post somehow that got me to think declaring the lower amount was made up for when you sold the property and paid the difference then at that future date.
Wish I could explain exactly what I read that made me think that as having just read it 5 times over I still don't know what got me there.

The unfunded checks scenario though I understand what your writing is still confusing to me in that at which and what point and the logistics of the transaction being formally recorded.

Would love to hear from an attorney on this.....even a crappy attorney (just kidding)...

I have a question for the lawyers on the board about the liability entailed in this type of activity. I don't know if any of this is actually happening, so I'll just frame it as a couple of hypotheticals.

Hypothetical: If the brokerages know this practice is happening, and they are publishing quarterly reports based on information that is known to be misleading, what is the liability associated with that. For example, if a broker uses a quarterly brokerage report (which contains faulty and inflated data known only to the brokerage) to induce a customer to buy, and the buyer loses money on the sale, would there be any recourse to the brokerage for that?

Another hypothetical: What about using comps -- that are known by the brokerage or agent to be misleading -- as part of the sales process? For example, a broker representing that a comp for this apartment traded for x, when it is known to the brokerage (not necessarily the broker) that that comp is misleading. Would a seller that relied on those comps as represented but subsequently lost money have recourse to the broker or the brokerage? What about if the broker had direct knowledge that the comp was faulty? Would that change the situation?

At least according to this site, you can track the evolving sales price of a unit that is not selling until the final price is shown when it's sold. I agree, I don't see how it could be legal, in order to subvert increased taxation...

Sirwinston - thanks for this follow up. Its funny how this apparently "commonplace practice" is never disclosed or otherwise mentioned in any of the quarterly broker reports! At least rental concessions were always recognized even if they weren't definitively quantified. This concession on the sales side really casts some doubt in the claims that prices are "stabilizing" ...

sirwinston:"no cost basis problem because owner simply uses the lower price paid as cost basis upon sale".

why would owner later sell at LOWER cost basis? the cap gain on exit is reduced from HIGHER cost basis!
so the incentive there is backward.

This thread is simply A M A Z I N G. needless to say, whatever shenanigans are going down, it can't CONTINUE endlessly. you can only stretch the fabric of reality so far, untill.......RRRRRIP. The jobs aren't there. the incomes aren't there. the increased population isn't there.

skinnysweet:"Hypothetical: If the brokerages know this practice is happening, and they are publishing quarterly reports based on information that is known to be misleading, what is the liability associated with that."

Real Estate is self policed. unlike securities. LOL. in any case where did securities regulation get us? There's this funny clip of Arthur Levitt on PBS saying in retrospect as to why he didn't heed the complaints of one Ms Born of CFTC (who raised her complaints in the Bubble days all the way to congress) : "I didn't know Ms Born, ...I wish I had KNOWN she was an intelligent person to listen to" (!!!!) I'm not kidding, this was his on the record excuse.

Kirz: owner uses lower price as cost basis therefore will pay maximum or correct taxes on gain on sale, so owner will not have failed to pay proper taxes..ie owner has no problem with the IRS and they no quarrel with him...plus taxes paid on initial purchase are paid on higher price, therefore city/state have no quarrel either...in fact, they were overpaid (sponsor picks up the excess tax in form of addtl concession)...it's the perfect deception: the sponsor gets to hide the actual substantially lower purchase price but city/state/fed govt get paid full taxes as if transaction was logged at lower price, so no tax issue...the whole scheme legally allows the sponsor to record a deed with a far higher price than was actually paid to keep the comps (publicly available) as elevated as possible.... At least that's my understanding, not having specific expertise in tax/law/real estate

I was thinking of this and another point struck me: hasn't much of the activity in the last quarter or two been disproportionately more all cash deals ? I thought I read that somewhere and if true, that really makes the claim of "stabilizing prices" even more of stretch given this practice outlined above for the all cash transactions.

Kirz agree with the analogy - the fabric keps a stretchin', but at some point it will rip.

-are you sure they didn't cut prices?

What Recession? Condo projects that didn't cut prices?
http://www.nytimes.com/2010/08/01/realestate/01posting.html?_r=1&ref=realestate