Bill Morris in Bricks & Bucks
Nick Biasi, 87, has served on the board of his Queens co-op for more than three decades. In that time he has become deeply familiar with the enduring duty of every co-op and condo board: bring in enough revenue to cover the building’s expenses. One of the more reliable revenue sources is something that goes by several names – because it serves several functions
A “flip tax,” as the name implies, is a way for boards to penalize residents who buy an apartment, then quickly sell it at a profit – by keeping a percentage of the sale price or the seller’s profit. It’s sometimes called a “transfer fee” – when it is inspired less by a desire to prevent flips than by a need to generate steady revenue, while, in the bargain, promoting stability in the building. Call it what you will, it remains controversial, prized by many boards, detested by many apartment owners, and questioned by many lawyers.
Nick Biasi sees it as a valuable board tool and a valid response to a problem that began to arise in the 1990s at his 396-unit Northridge Co-op Section II, on the Elmhurst-Jackson Heights border in Queens. “People started saying they were buying apartments for themselves, and low-balling the seller – and then they would come in with some cock-and-bull story that they had to sell, and they flipped the apartment,” Biasi says. “We don’t want speculators here, we want people who are going to stay.”
And so the board, which had already instituted a flip tax of 25 percent of the profit on all apartment sales, instituted a stiff 75 percent flip tax on the profit of any sale that takes place less than two years after the initial purchase.
“It definitely discourages people from flipping apartments,” Biasi says, “and the income is very valuable to us. We’ve hit years with $500,000 to $600,000 in revenue from the flip tax. That money goes into the general fund and keeps the maintenance down.”
Biasi admits that the flip tax is not universally loved. It’s especially unpopular with longtime residents, some of whom bought their apartments for $600 after the co-op was built in the 1950s as Section 213 affordable housing. That $600 apartment could theoretically sell today for $250,000 – a $249,400 profit that would be taxed to the tune of $62,350.
A self-managed, 21-unit co-op in Morningside Heights has just taken a similar step to penalize shareholders who flip apartments – upping its 1 percent flip tax to 3 percent for anyone who sells an apartment less than three years after the original purchase.
“If people buy and sell frequently in a self-managed co-op, it puts stress on the building because of all the administrative details,” says board treasurer Robert Kruckeberg, a high school physics teacher. “Also, we want long-term owners in the building. I don’t think a 1 percent flip tax is going to keep someone from selling their apartment, but a 3 percent flip tax might deter someone from flipping an apartment.”
Two-bedroom apartments sell in the $500,000 range – which means someone trying to flip such an apartment would face a charge of $15,000 instead of the conventional $5,000.
Robert Gordon, the attorney for both co-op boards, questions the fairness of a surcharge on a flip tax. "What I thought was potentially unfair was the burden of an additional levy where a shareholder is relocated by employment or is forced to sell for other reasons beyond his control," Gordon says. “I’m hard-pressed to justify it myself. If a buyer gets vetted by the board and is qualified to buy an apartment, and then they get a job out of state – they’re being penalized for flipping the unit.” Considering the costs of broker fees, taxes and closings, he adds, “There’s no windfall for the seller. Most people are probably taking a hit. You’re adding insult to injury.”
Nick Biasi, Robert Kruckeberg – and a lot of bottom-line-conscious board members across the city – would beg to disagree.
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