You've been searching for your dream home for months, and with your savvy agent's help, you know the market inside and out. But suddenly a listing comes on the market that doesn't make sense: the taxes are way too low for the price and neighborhood. What's going on??

Enter the concept of the tax abatement. A tax abatement is a government-backed relief on property taxes in an effort to promote real estate or commercial development in a given area. There are various types of tax abatements, and understanding them is key to asking the right questions when putting in an offer for a property that benefits from one.

421a
Started in 1971, this is the most common tax abatement that you will encounter. While its initial intent was to promote co-op and condo development on underutilized or undeveloped land, it was overhauled in 2008 to include, among other things, a requirement that qualifying buildings set aside 20% of their units for affordable housing. The exemption usually lasts for 10 years, but may go as high as 25 years. For simplicity, let's focus on the 10-year situation: in this case, owners are guaranteed a 100% exemption from tax increases for the first 2 years, and the exemption is then phased out by 20% every 2 years. So in years 3 & 4, you'll have an 80% exemption; years 5 & 6, a 60% exemption; etc. By year 11, you'll have no benefit left, and you'll be paying your full property taxes.

J-51
This incentive will really only impact you if you own a rent controlled building. It was enacted in the 1950s to encourage owners of such buildings, who couldn't otherwise afford renovations based on their actual rent rolls, to upgrade their buildings. Owners can recoup approximately 75% of their renovation costs under J-51, but they are not allowed to decontrol rent in tandem.

Coop and Cooperative Tax Abatement
This program gives a tax abatement to any qualified co-op or condominium that applies (there are a few exceptions, which are too minor to call out here). In most buildings, this abatement will not be pushed back to the individual shareholders and owners; instead, boards will usually pass a "special assessment" in the same amount as the abatement, which offsets any benefit the shareholders would've seen. The upside here is that the board can use that special assessment money to pay for capital improvements or to cushion their reserve funds, all without raising maintenance on the owners/shareholders - it's a win-win!

​So How's This Impact Me
As a consumer, it's all about education: the more you know, the better prepared you are to tackle the process of buying and selling real estate. When looking at properties, it's important to understand whether they benefit from any of the tax abatements listed above. If so, be sure to know:

• The expiration date of the abatement
• How far into the abatement period it is
• The phase out schedule of the abatement

With this information, you'll be much more equipped to understand your potential property tax exposure over time. I stress the word potential, as even with all the property tax history in hand, it is impossible to know what will happen next year or 5 years from now. Properties are reassessed every year, and that assessed value directly impacts your property tax exposure. And (very briefly, as this topic could, and eventually will, be a whole separate blog post), coops and condos are assessed based on the revenue they would bring in if they were rental buildings. So if home prices are falling, but rental prices are going up, your assessed value may actually go up - but more on that later!

If you ever have any questions on tax abatements, or if you're ready to start your search for your perfect next home, I'm always here to help. Send me a message or give me a call!

Last month, we explored the intricacies of the co-op. This month, let's jump into its less-common counterpart, the CONDO. Condo ownership is much more traditional, as is the process to buy one, so this blog will be much shorter than last month's.

What Is a Condo?
Unlike a co-op, a condo is real property, and it comes with a corresponding deed. And instead of the proprietary lease you receive with a co-op, for a condo you are issued a traditional mortgage. 

Once you've bought a condo, you'll have to pay monthly maintenance fees. These fees only include standard building upkeep and maintenance (staff salaries, utilities, etc.), none of which are tax-deductible. As a real property owner, you will receive a separate real estate tax bill for your specific unit, which you'll be required to pay quarterly. Like with any other property, these real estate taxes are tax deductible.

What's the Application Process Like?
Like a co-op, you will still need to fill out a purchase application, but -- depending on the building -- the requirements will generally be MUCH fewer. Some condos will require a full financial disclosure, others little to none; some will require letters of recommendation, others none. But the one big perk of a condo: no board interview!

So What Does the Condo Board Do?
While there isn't a board interview with a condo application, the board will still review your application. And while they're looking to make sure you're a financially feasible candidate, the real purpose of the review is for the board to determine if it wants to exercise its ​Right of First Refusal.

Right of First Refusal
​What happens when someone lists their apartment for way below market value in an effort to sell the place quickly? It may drive down the neighborhood comparables and threaten the appraisal value of your own property. In an effort to avoid this from happening, a condo board has the Right of First Refusal, which means it can match any offer - ​term-for-term​. If a board exercises its right of first refusal, it purchases (or rents, if the apartment is up for rent) the condo and can then resell it themselves.

​After you submit your purchase application, you cannot move forward with the purchase until you receive a waiver from the board that they will not exercise their right of first refusal.

Why Would I Buy into a Condo?
​
Your Place - Your Rules (Mostly)
When you buy a condo, you're buying real property, and the rules tend to reflect that fact. You want to rent it out? Go for it! (Condos will still have rules, including the tenant-to-be sometimes needing to submit a complete board package, but they will generally be much less restrictive than in a co-op). You want to use it as an investment? Sure!

More Financing Options
While most co-ops require at least 20% down, many condos will allow lower down payment requirements (10%).

Well Now This Sounds Pretty Great! What Are the Downsides?

Higher Closing Costs
Because a condo is real property for which you receive a mortgage, you have to pay the upwards of 2% mortgage recording tax. On a $500,000 apartment example, that's $10,000 in additional closing costs that you wouldn't incur with a similarly-priced co-op.

Higher Purchase Price
Because of the flexibility in rules and financing, condos typically command 10%-20% more than co-ops.

Less Inventory
While condo inventory has grown over the years, they still only make up about 1/4 of New York City's real estate inventory. So if you're dead set on a condo, brace yourself for a potentially longer hunt for that perfect home to come to the market.

If you're ready to make the jump into home ownership, I'm always available to help with your search. Please reach out any time!