An insiders perspective of what buyers should look for when purchasing in a new development condominium.
- First and most important is that unless the project has been built already and is ready for move-in, you should be flexible on your closing timeline. Construction always equals delays. Be prepared to wait 6 months and up to 12 months from the closing projections that you are given by the sales team. From fire alarm inspections, to Con Ed installing the gas meters, you are at the mercy of various city agencies and construction teams and, of course, those custom windows being shipped from Italy never arrive on time. The good news is that the finished product is usually pretty spectacular and worth the wait.
- Expect to pay slightly higher closing costs. It is customary in NYC new development purchases for buyers to be asked by the sponsor to pay NYC and NYS Real Property Transfer Taxes of 1.825%, the sponsor’s attorney fee (which varies but usually around $2750), a capital contribution to the new condominiums reserve fund of usually one or two months of common charges, and on occasion, a Residents Manager contribution to pay for the live-in super’s unit. Instead of your closing costs being 3 to 4% as they would in a normal resale purchase, you can add another 2% in a new development purchase. Fret not, all of this at the end of the day is negotiable.
3. It’s never a bad idea to read the offering plan when purchasing a new home. In the case of a new development that is not yet completed, it is pretty much mandatory that you and your seasoned new development attorney read the offering plan. The offering plan is your projection as a consumer and it has been submitted to the Attorney-General and approved by them stating what the developer is expected to deliver. Anything significant that varies will have to be approved by the AG in an amendment filed by the developer. It is crucial to read it because there is a wealth of information in there about the risks involved (see “Special Risks” section of the plan). Another section that is full of great information is the Architects’ or Engineers’ Report, which talks about everything from the materials used in the lobby, what model of air-conditioners will be installed to the color of paint in the common areas. You will be given a very complete and detailed look at what the final product will look and feel like. As for the architect of record, Google them as well. See what other projects they have put their names on. Finally, read about the building’s retail space and what are the permissible uses under the plan. Can you resell your apartment immediately after closing? Or, are there restrictions built into the plan so that you are not competing with the developer’s unsold inventory?
4. Look into the developer’s track record for success. What other projects have they done? What was the result like? How many projects have they done? What kind of financing do they have in place to ensure the project gets finished? Who is actually building the project? Don’t be afraid to ask and Google them. Some developers, like Extell, have such a long track record of success there is almost no risk. If you are purchasing in a project with a developer that is somewhat green, then ask for an outside closing date in your contract whereby if the project gets delayed past a certain point, you can just walk away and get your money back.
5. Work with a broker on the buy side who has done a significant number of new development deals. They will help educate you, and alert you to pitfalls or opportunities along the way. When it comes time to negotiate the best possible price, having a broker on your side that has completed deals in the building or with that developer is always a plus. They will help you understand what inventory is left that remains unsold and not listed, and what that means in terms of you getting a discount and will be your advocate in the process. Most importantly, if you are trying to decide between two units in the same building, having an outside broker who is experienced in new development and resales on your side will be worth their weight in gold when it comes to identifying which unit will be easier to sell down the road.