Flip taxes -- yay or nay?

A big percentage of coops use flip taxes to fund their periodic maintenance. People are fine as long as it is around 1 percent and paid by the seller. I think at 2 percent people start to feel that it is on the high side and supports the buy condo vs coop. Afterall, why should neighbors benefit from someone's need to sell.

I'd suggest that the 2% buildings are at the higher end of the market, and typically have units that are held for a long time (till death!), so the idea that the heirs/estate are getting a little less isn't viewed as a problem.

"Afterall, why should neighbors benefit from someone's need to sell." Think of it as a deferred assessment. As a shareholder/tenant, you got the advantage of all the other sellers during your residency, now when you depart, you pay up. Maintenance has to be done, and it has to be paid for somehow: increased monthly expense, one-off assessment, and transfer fees are all legit ways to run the business.

Aaron, I like to think of assessments in terms of per year amounts. Flip tax favors long-term holders over short-term holders. Higher flip taxes are a drag on prices and increase the time taken to sell. If the maintenance has to be done, charge people more every year. Why load more of the cost of maintenance on some share-holders vs others? Coops should wiser and run them more like condos so increase desirability of the coops. This means - easier rental policy and buyer approval etc.

If they are considering raising the flip tax I'm willing to bet that it is because the current maintenance isn't covering running the building (plus capital repairs) and they are looking for "free money" rather than raising the maintenance or assessing the shareholders. They see prices rising and figure that sellers should contribute part of their gain with the Coop. The problem is when prices rise, or even drop, the higher flip tax will be in place (and good luck getting it lowered after the Coop gets used to collecting it). If the market does fall, not only will a higher flip tax be a big point of scrutiny from potential purchasers, but back in the 1990's I saw more than a few cases where there was no money left after the mortgage payoff and deals fell apart because of an excessive flip tax.

It also becomes a crutch for boards who end up building expected flip tax money into their annual budgets and if you don't have any sales in a year (or fewer than expected) they end up getting squeezed, raising mtc, assessing, etc.

Boards love flip taxes because it's a way of getting money from people who aren't going to be able to complain about it because they won't be shareholders any longer.

I lived in a cooperative years ago where there was a 10 % flip tax! The insider prices were unbelievably low for the conversion because the owner of the building had tried to do a coop conversion three times with no luck. So the rationale for the high flip tax was that, at the time of conversion, people could sell their apartments for 5 to 7 times as much as the insider price and the building needed extensive repairs. All the money from the flip tax went into the building's reserve fund.

Well if they are considering flip tax that means likely they are short on money and its either that, maint increase or something else. Hard to say what both sides of the argument without knowing what the current and what the proposed is. I always felt 2% of sales price is about market for coops.

http://www.nytimes.com/2003/04/13/realestate/your-home-imposing-flip-taxes-in-a-co-op.html

https://ny.curbed.com/2012/3/28/10385724/seller-concerns-what-is-a-flip-tax-and-who-has-to-pay-it

https://ny.curbed.com/2012/3/28/10385724/seller-concerns-what-is-a-flip-tax-and-who-has-to-pay-it

We do not include flip tax revenue in our budget. Flip tax proceeds go first to common area improvements, the remainder to chip away at the underlying mortgage -- two things shareholders are loathe to fund on a monthly basis. This is a small co-op and we're at 1%.

Even in a large building, there's so much variability in number of sales and prices that any forecast would require huge confidence intervals around it. I'd have serious reservations about any building/board that relied on flip taxes to fund daily operations.

i bought a coop on UES last year. 2% flip tax seemed to be the standard.

Completely agree that using a flip fee to fund current expenses and even most maintenance isn't the best way to run a building, for all the practical reasons given above. I'd be curious to see data about the fee: are they more prevalent in smaller buildings, older buildings, buildings with higher-priced units, etc. Also, what is the board's motivation for imposing the fee? Reducing rapid turnover (the classic 'flip'), paying for big ticket items, paying for nice-to-haves? My building (200+ units, coop since 1970s) doesn't have the fee, and we prefer not to have assessments -- we fund everything out of maintenance and tax refunds (I know: technically an assessment).

I enjoyed the tone of the article, it was entertaining.

I think 2% is quite average

Im in a small building and we keep a healthy reserve. We only ever use it for 2 things.

1) Common area improvements. We are also considering a serious lobby facelift.
2) You've all failed to mention one the largest expenses in a single bill a co-op may face, local law 11 facade inspection and repairs.

In any case, it should never be counted on for your regular budget.

My very small former co-op had a flip tax imposed only on those who sold within 5 years; it was the greater of $2,000 or 3% of the profit. Interestingly, profit was defined as sale price minus purchase price minus broker fees on the sale. The policy was silent on things like renovation and other cost basis.

In such a small building, it was (at best) an unpredictable source of revenue, and I think only person ever paid it, with several other sales at the 5 to 5-1/2 year mark. The flip tax was instituted after several people truly flipped apartments (12-24 month tenures, which involved renovation), but then the market cooled off.

There was always discussion of a flat 1% applied to everyone, but the old-timers did not want to vote themselves into having to pay. Flip tax came up every time we were tight on maintenance, but again, not guaranteed and in a building this small, there was no guarantee of any revenue over five years even.

If I were buying again, I'd avoid/discount anything with more than 1% flip tax, and I'd want to see that the building can meet regular expenses without a flip tax.