New York buyers love the nines. As in, $999,999. Or just anything below a million dollars. That’s because the $1 million threshold triggers the mansion tax, that 1 percent levy that’s so commonplace in Manhattan real estate. It’s been around for two decades, but buyers have never stopped trying to avoid it — perhaps now more than ever.
In a market like this one, even sellers who aren’t willing to budge on the price can sometimes be convinced to foot the bill — in some way — for what is traditionally a buyer’s burden. Sponsors at new developments, for example, have been known to absorb mansion taxes, among other closing costs, as part of their concession packages. That way, they can keep the price per square foot high without turning off buyers who are expecting to find deals.
“Because it’s a buyer’s market, they feel they want to push as much as they can to get bang for their buck,” said Frances Katzen, a broker at Prudential Douglas Elliman. “Buyers will put in low offers in order to offset having to hit that [mansion tax] threshold.”
Recent data illustrates the point. During a 60-day period this summer, 129 Manhattan apartments closed for between $900,000 and $999,999, according to StreetEasy. Meanwhile, just 49 closed in the next price bracket up — between $1 million and $1.1 million.
To be sure, the mansion tax was likely not the only factor in those lower sales — what buyer doesn’t want to pay less for more? — but it appears to be a significant one.
For anyone who has ever bought, sold or marketed a New York property in the price range around $1 million, the discrepancy in closing prices isn’t a surprise.
Lawrence Rich of Prudential Douglas Elliman
“The mansion tax, for some reason, irks people,” said Lawrence Rich, a broker with Prudential Douglas Elliman. “It’s a psychological thing. … The word sounds like, ‘Oh my god, how much am I paying?’”
While an extra $10,000 or so isn’t life-changing for most million-dollar buyers, brokers say the state-imposed fee has the potential to make or break deals at that price point, particularly as buyers settle into a feeling of entitlement that’s grown in the years since the market suddenly swung in their favor.
Established in 1989 by then-Gov. Mario Cuomo, “mansion tax” has always been a bit of a misnomer in Manhattan. The last time $1 million got you an average three-bedroom apartment on the island was in 1994, according to appraisal firm Miller Samuel.
The 49 closings StreetEasy found just over $1 million were mostly one- and two-bedroom spreads containing less than 2,000 square feet — hardly mansions.
For those who are on the cusp, $1 million is apparently a tough sell, according to Miller Samuel data. Figures compiled for The Real Deal show a large cluster of sales between $975,000 and $1 million over the past five years, after which sales volume takes a dramatic nosedive. While 1,755 residences closed within the $975,000 to $1 million range between 2005 and 2010, just 311 closed between $1 and $1.025 million.
Karin Posvar Picket, a broker at the Corcoran Group who once bought an apartment for $999,000 herself in order to avoid the mansion tax, said she advises her sellers accordingly. (The magic number is actually about $982,000 if the buyer is paying the transfer taxes, but those are often paid by the seller, at least in part.)
And it seems she’s not the only one.
StreetEasy data shows that since 2008, 5,030 listings have been priced between $950,000 and $999,999, compared to just 1,316 listings between $1 million and $1.05 million.
As a result, sellers looking to clear more than $1 million sometimes face cringe-worthy bids.
Click to enlargeRich, the Elliman broker, recently had a buyer attempt to skirt the mansion tax with a $950,000 offer on a renovated one-bedroom, two-bathroom apartment with a terrace on the Upper East Side.
The property had been listed for $1.295 million.
The seller balked, so Rich’s buyer came back with a higher offer and an unusual caveat: She’d crack the $1 million mark for the apartment — $1.2 million, in fact — but the seller must pay the mansion tax. They wound up splitting it: $6,000 each.
A tax so unpopular in principal that it would cause a buyer to pony up an additional $256,000 in order to sidestep $6,000 in fees would seem a popular political talking point, but efforts to increase the mansion tax threshold have never quite gotten off the ground.
Stephen Kliegerman, executive director of development marketing at Halstead Property, speculated that $2 million would be a more appropriate price point for New York City. “But the state really needs the revenue,” he conceded.