It’s deal frenzy before the taxman cometh

The state’s new mansion and transfer taxes go into effect in under 60 days. And buyers have demands.

TRD New York /
May.May 07, 2019 07:00 AM
“Everyone’s trying to sell before July," noted Vicky Barron of Compass. “It’s bonkers.” (Credit: iStock)

“Everyone’s trying to sell before July,” noted Vicky Barron of Compass. “It’s bonkers.” (Credit: iStock)

Buyers and sellers hoping to sidestep the state’s new taxes on high-end homes have a fast-disappearing window of opportunity. And the industry’s efforts to help them do it could reveal what may be in store for New York’s troubled residential market.

New York State’s new mansion and transfer taxes go into effect July 1. Though any sale where a contract was signed after April 1 would technically be subject to the new taxes, if the sale closes by June 30 both buyers and sellers still pay the old tax rates. (The old rates are also grandfathered in for contracts signed prior to April 1 – even if the deal has yet to close.)

For buyers who don’t wish to be burdened with additional taxes, there’s a sense of urgency to go into contract and close by the end of June, brokers said.

“We’ve seen more buyers pulling the trigger,” said Noble Black, a top broker at Douglas Elliman. Black attributed two of his recent deals – a $6 million Tribeca purchase and a $10 million Financial District transaction — to the looming threat of the new mansion tax, with his buyers going into contract at the end of April.

If these buyers had to pay the new mansion taxes on their purchases, the properties’ respective tax bills would come to $135,000 as opposed to the $60,000, and $325,000 instead of $100,000, according to The Real Deal’s calculations.

The new “mansion tax” ranges from .25 to 2.9 percent and apply to residential properties sold for $2 million and higher. The new levies are added on top of the existing 1 percent tax already collected on residential transactions of $1 million or more. Transfer tax is also increasing by .25 percent for homes sold for more than $3 million. The new taxes take effect on July 1 and are estimated to bring in about $365 million in revenue for the state.

Chelsea Werner, a broker at Bold New York, said the new mansion tax’s price bump had “galvanized” some of her clients who’ve been looking for a while.

“Now it’s a race to the finish line,” Werner said. “At the end of the day, it’s money and money matters.”

“Everyone’s trying to sell before July,” noted Vicky Barron of Compass. “It’s bonkers.”

Barron believes that once the taxes have kicked in July 1, buyers will insist sellers help them bear the burden. And it’s a conversation sellers will need to be receptive to, she said.

“The buyers are kind of holding the cards,” Barron said, noting that she’s already seen buyers asking sellers to split the closing costs.

Firms that chronicle the residential market, such as Olshan Realty and Miller Samuel, have yet to report a spike in transaction volume stemming from the new taxes. But at least one lender has seen a spike in mortgage applications.

Valley National Bank is “seeing a pickup in applications for people trying to close by the deadline,” said Joe Palermo, a home-loan consultant at the bank.

The taxes are also being reflected in the actual language in the contracts, real-estate lawyers said.

Craig Price, an attorney at Belkin Burden Wenig & Goldman, said he’s written a handful of contracts in the past month that specify the seller will pay the mansion tax if the deal doesn’t close by the end of June.

“June 28 is definitely a circled date on my calendar,” Price said.

Michael Strauss, who represents sellers and has been on the receiving end of those contracts, said such clauses popped up in two deals he handled last month. He’s not a fan of them, however.

“Some of the scheduling we just can’t control,” he said, pointing to a co-op board as an example. But he noted later that “if I were the buyer’s attorney, I would be looking for the same thing.”

Werner said she’s already beginning to negotiate the mansion tax for her clients, particularly in new-development projects.

“The name of the game is how much can you get the sponsor to cover as a credit at close…and obviously the mansion [tax] is a huge part of that,” she said.

Though still early, she said so far reception to the idea of sponsors paying part of the mansion tax has been largely cold.

“I think sponsors are trying to stick to their guns as much as possible because I think they don’t want to show any fear,” she said. “But buyers are walking away.”

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