Selling a Co-op: Board Approval, Flip Tax and Paperwork

Selling a co-op means selling shares in a corporation plus the proprietary lease that goes with them, so the building, not just the buyer, has a say in the deal. You still price, market and negotiate like any seller, but your closing depends on the co-op board approving your buyer, and you will usually pay a flip tax and building fees on top of the usual NYC seller costs.

This guide covers the seller's side: what to gather before you list, how board approval affects your timeline and your risk, what the managing agent needs from you, how a share loan is paid off and released, and what happens on closing day. Every building writes its own rules, so treat the house rules, proprietary lease and bylaws as the final word.

How a co-op sale differs from a house sale

Before you list: build your seller file

Buyers' attorneys and lenders ask for the same co-op documents in almost every deal. Having them ready shortens the contract stage and makes your listing more credible.

• Your stock certificate and proprietary lease. If a lender holds them as collateral for your share loan, they will come from the lender at closing. If you can't find them, tell your attorney now; replacing a lost certificate takes time and paperwork through the managing agent.
• The building's financial statements and house rules. Buyers will review the last two or three years of audited financials and any recent board minutes, if the building releases them.
• Your maintenance amount and any assessments. Know the monthly maintenance, the tax-deductible share, and any special assessment that is billed now or has been voted. Buyers will ask who pays an assessment that straddles closing.
• Alteration agreements for any renovation you did. Boards and buyers ask whether work was approved and closed out. See preparing your home for sale for the paperwork list.
• The building's sale package and fee schedule. Ask the managing agent for the purchase application, the flip tax policy, transfer and processing fees, and the move-out rules.

The managing agent's questionnaire

After you sign a contract, the buyer's attorney and lender usually send the managing agent a questionnaire about the building: its finances, any litigation, owner-occupancy, commercial space, underlying mortgage and pending assessments. Many managing agents charge a fee to complete it, and the contract often says who pays. You can't control the answers, but a building with an unusual problem (for example, major litigation or a large planned assessment) can slow a buyer's financing, so it helps to know the answers before you price.

Board approval: your biggest timing risk

Most proprietary leases let the board approve or reject a transfer. Your buyer, not you, submits the board package, but a rejection or a slow review delays your closing and can end the deal. In a typical contract the buyer gets the deposit back if the board says no. Read the co-op board rejection guide for what boards can and can't consider.

Ways to reduce the risk as a seller:

• Screen offers against the building's rules. Ask the managing agent for the minimum down payment, post-closing liquidity and debt-to-income limits the board applies, and compare each offer to them. Roofy's co-op board approval calculator runs those numbers.
• Ask for a financial summary with the offer. Sellers in NYC commonly ask for a short statement of the buyer's assets, income and financing before accepting.
• Watch for guarantors and parents buying for children. Many boards limit or refuse these structures; check before you accept such an offer.
• Keep the package moving. Your broker or attorney can check with the managing agent that the package is complete. Incomplete packages are a common source of delay.

Typical co-op sale timeline

1. Before listing

   Gather documents

   Stock certificate, lease, financials, fee schedule, alteration paperwork, payoff estimate.

2. Offer accepted

   Attorneys exchange contracts

   The buyer’s attorney does due diligence on the building. The buyer usually pays a deposit into escrow when signing.

3. After contract

   Buyer gets a loan commitment

   Most financed buyers need a commitment before the board package goes in.

4. Package submitted

   Board review and interview

   The managing agent checks the package, then the board reviews it and may interview the buyer. Timing varies by building.

5. Approval

   Schedule closing

   Co-op closings are usually held with the managing agent’s closing representative, both attorneys, and the lenders.

6. Closing day

   Shares and lease transfer

   Your shares and lease are assigned, a new certificate is issued to the buyer, and payoffs, flip tax and fees are paid.

What you pay at a co-op closing

Co-op sellers pay most of the same costs as other NYC sellers (see NYC seller closing costs), plus building charges. The transfer taxes apply to co-op shares.

Run your own numbers with the flip tax calculator, seller transfer tax calculator and seller net proceeds calculator.

Paying off a share loan: the UCC-3

A co-op loan is secured by your shares and lease, not by a recorded mortgage on real estate. The lender's claim is shown by a UCC financing statement. In New York City, UCC financing statements for co-ops are filed through ACRIS, the city's property records system, indexed to the building's block and lot.

At closing, your attorney gets a payoff letter, the lender is paid from the sale proceeds, and the lender releases your stock certificate and lease. The lien is cleared by filing a UCC-3 termination. The Department of Finance lists the fee for amendments and terminations as $40 on paper or $20 electronically. The buyer's attorney will order a lien search in advance, so an old UCC from a loan you paid off years ago can surface. Ask your old lender for a termination early if that happens.

Taxes on your profit

A co-op apartment can count as your main home for the federal home-sale exclusion. The IRS says you may be able to exclude up to $250,000 of gain ($500,000 on a joint return) if you meet the two-out-of-five-year ownership and use tests. For co-ops, your basis includes what you paid for the corporation's stock. Estimate the tax with the home sale capital gains calculator.

If you are not a New York State resident, the state transfer tax rules note that nonresident sellers of co-op units may need to file Form IT-2664 and pay estimated income tax at closing. The nonresident seller estimated tax calculator shows the likely amount.

No disclosure form, but don't hide problems

New York's Property Condition Disclosure Act defines residential real property to exclude co-op apartments, so you don't fill out that form (see the disclosure guide). That doesn't mean anything goes. Your contract will contain representations, and the federal lead paint disclosure rule can apply to housing built before 1978. Ask your attorney what you must disclose for your building.

Moving out

Most co-ops control move-outs: you may need to book the service elevator, move on weekdays only, pay a refundable deposit, and give the managing agent your mover's certificate of insurance. Ask for the rules when you sign the contract so they don't delay your closing. The certificate of insurance guide explains what buildings ask movers for. Leave the apartment broom clean and in the condition the contract requires; the buyer will do a walk-through before closing.

This guide is general information, not legal or tax advice. Your proprietary lease, your building's policies and your contract control the details; have a New York real estate attorney review them.