if you're watching this video you're likely aware that co-ops in new york
city have broad discretion to approve or reject prospective purchasers now
oftentimes a co-op may actually reject a purchaser not for any reason pertaining
to the applicant's financials but rather because the contract price itself is
deemed to be unacceptably low by the co-op board so in this video we're going
to talk about a common method for reducing the risk of this happening in
your potential transaction i'm nick at hauseit you can visit hauseit.com to
learn how to save money if you are buying selling or renting here in new
york city long island hudson valley or south florida
so how does one reduce the risk of being rejected by the board due to a low
contract price well the long and short of it is that
the contract itself can be adjusted or papered to show an artificial price
for example if the price agreed between buyer and seller is say 2.6 million and
you're pretty confident that the co-op won't be happy
with that number you can simply instruct the attorneys to draft the contract with
a much higher price for example something like 3.5 million
so just to reiterate the economics of the deal are still 2.6 million in terms
of the price but the paper itself the contract which is going to be submitted
to the co-op board as part of the board application will have an inflated number
now of course in addition to the contract itself the attorneys on the
deal will of course paper something on the side which makes it very clear that
at closing the seller will return the excess proceeds to the purchaser
now one ramification for this method is that it does increase the total closing
costs on the transaction both buyer and seller closing costs are impacted by
artificially increasing the contract price it can affect the closing costs
vis-a-vis the mansion tax that the buyer typically pays it can affect the
seller's closing costs through the city and state transfer tax obligations and
it can also affect either the buyer or the seller through the flip tax
so on the screen we've actually put together an example showing the
difference in closing costs associated with artificially increasing the
contract price as you can see there is a meaningful increase in the closing cost
bill as a result of changing the contract price to appease the board
now who's responsible for these incremental closing costs really depends
on the particulars of the situation at hand who has the leverage is it the
buyer who has the leverage or is it the seller and depending on the answer that
will dictate the flow of the conversation and ultimately who agrees
to pay the incremental closing costs associated with changing the contract
price but in general we would say the most
common approach for this scenario is of course that the seller is responsible
for the incremental city and state transfer taxes as well as the
incremental flip tax bill associated with this increase in the contract price
ultimately keep in mind that it's the seller who is needing to do this in
order to sell their property because of the rigidity of the co-op board so the
seller would be unreasonable in most cases for the seller to say
you actually have to pay the additional seller closing costs associated with
this financial manipulation that we're doing
because of my co-op board so again it'll be most common for the seller to pick up
the tab for the flip tax and the city and state closing costs increases
associated with the higher contract price now for the mansion tax
usually we would say that the seller would at least try to make the buyer pay
that but ultimately it depends on who has the leverage as to whether or not
the buyer would agree to pay this overage on the mansion tax specifically
now if you are in this situation and you're financing it's very important to
check with your lender to see if this type of activity is even permitted so we
hope you found this video to be helpful short and sweet the answer is that you
can adjust the contract price higher and submit a contract to the board with the
higher price being referenced and on the side the seller agrees to give back the
additional money to the buyer and then the buyer and seller work out who's
responsible for the incremental closing costs associated with increasing the
contract price to appease the board if you have any questions or comments leave
them below this video or send an email to team house.com and please do check
out hauseit.com to learn how to save money if you are buying selling or
renting a co-op condo or a townhouse in new york city long island the hudson
valley or south florida i'm Nick at Hauseit and we'll see you on
the next video