Buying a New Development Condo in New York City can be overwhelming, particularly if you have little knowledge of the reputable developers and construction companies. Buyers often opt for off-the-plan new construction condos, but they can also come with their own set of challenges.
New York real estate is also unique for several reasons. Due to steady demand, analysts often rank New York City as a top market for real estate investment. It’s essential to buy a well-built new condo construction developed by a respected developer. When purchasing a great product, there is a strong chance you will profit from it in the future.
Here is what you need to know before buying new development condos as a home or investment property.
New Development Guide
Table of Contents
- The Basics of New Development Condos
- Are New Developments Right for You?
- Advantages of New Development Condos Include
- Buy Pre-Construction
- Off-The-Plan New Development Condos
- Ask How the Square Footage Is Calculated
- New Development Condo Closing Costs
- Risks to Buying in an Off-the-Plan New Construction
- Don’t Ask for Special Amenities
- Hire a Buyer’s Agent with New Development Expertise
The Basics of New Development Condos
First-time purchasers might not understand the intricacies of new development condos, which can lead to confusion during the purchasing process. It’s important to be cautious when buying a new development to make sure you are purchasing a quality product. Some new developments mature gracefully and others unfortunately not.
Off-the-plan condos can appreciate well when buying the right one. However, much depends on the quality of the product delivered. Important considerations when purchasing are building architecture, location, condo floorplan and size, buildings unit mix, amenities, and services.
The competitive nature of the market doesn’t always work in the buyer’s favor. Many buyers have trouble scheduling a showing, especially when a building launches sale, or getting accurate information on new developments. New developments often sell to friends and family before releasing to the public. By having the right buyer’s agent with industry connections, you’ll have a better chance of getting in before the public. Getting in early would enable you to select a better unit.
Are New Developments Right for You?
In the minds of some buyers, the potential complications of new properties are easily offset, by their distinct advantages. If still in the pre-construction phase, sellers in a buyer’s market are usually willing to offer lower prices to attract buyers. When presented with the opportunity, new developments provide an excellent choice for investors willing to do adequate research to assess risks.
However, for some buyers, the higher closing costs of new developments make them an unrealistic option. You’ll need to decide whether you’re willing to take on the potential risks of off-the-plan properties.
Although the number of new housing units finishing construction continues its steady decline, new developments continue to attract buyers. For a city like NYC, with its high cost of living, that’s not too surprising. New developments offer a chance to pick up a brand-new condo apartment. If you’re one of the first through the door, you might be able to get a good deal. However, this type of purchase comes with some risks and extra fees that won’t be obvious at first.
Finding mortgage financing with your bank for new developments can be difficult if 50% or more of the units have not been sold. Most well-known developers secure pre-approved lenders. In this case, the pre-approved lenders would serve as the best option when financing. A building without pre-approved lenders is a red flag, and we urge caution before considering it any further.
Advantages of New Development Condos Include
Versatile Modern Floor Plans
If you want to design your floor plan, you’ll have more options and will save money off of a remodel by purchasing property off-the-plan. While most developers do not allow for customizing your floorplan, you will have a selection to choose from. This makes finding the ideal floorplan easier in a new development if you get in early. Buying off-the-plan can be scary but having the foresight can yield great results.
Better Value Overall
Although you’ll need to pay higher closing costs and a down payment of about 10%, or sometimes 20%, for an incomplete apartment if you invest early, you may have already offset the higher costs with capital appreciation by the time your building is finished. On average, 3-5 pricing amendments are filed before the development is sold through. Thus, the earlier you buy, preferably from Schedule A, the better your chance is to make the most profit before completion.
As the owner of an off-the-plan property, you’ll be the first person to live in the space. For many buyers, this exclusive benefit is well worth a premium. However, this advantage does not translate if you decide to sell your property.
Of these advantages, the tremendous long-term value of off-the-plan properties is undoubtedly the most compelling for most buyers. Incomplete apartments quickly appreciate as they near completion. As a result, buyers looking to invest often consider off-the-plan properties before considering resales.
Research the Developer/Sponsor and Sales Team
Reputation says a lot about what you’re getting into with new development. Look at the past buildings by the developer/sponsor; are they well known? Have any of them faced significant problems? The name behind a development says a lot about the building. A big name will increase demand – and also the price – while a developer with a history of poor or cheap construction is a red flag to stay away.
For comprehensive research, make sure there are no Better Business Bureau complaints filed against them. Ask your real estate broker about their reputation and even visit a few buildings to see how they’ve stood the test of time. A low-quality development and developer is a waste of your money.
Known as the “off the plan”; low inventory drives up sales of residences that have yet to be built. Some buildings sell more than 75 percent of their apartments before they’re halfway done with construction. Those who wait for the building to be completed will miss out on the more popular floorplans and views.
Buying off-the-plan means that you also purchase at Schedule A pricing. This means you’re buying at the lowest price. Although new developments are usually priced at a premium, resales prices are amended higher as they sell batches of inventory until entirely sold.
If the market is active, invest in a pre-construction condo that you can move into within a year or two. If you have a flexible timeline, it’s worth the wait to get a floorplan you want and at a better price. However, this tactic is riskier because you have to trust the developer and market even more.
Off-The-Plan New Development Condos
Off-the-plan properties are not entirely built, at the time of their purchase. Many New York buyers, especially foreign investors, prefer off-the-plan apartments for a maximized return on investment. They also prefer purchasing a property without the board approval requirement of some resales.
Off-the-plan condominiums often provide an excellent investment. While new developments have higher prices initially than resale properties due to high-quality amenities and finishes, buyers who act quickly and purchase schedule A pricing in the right building can potentially see quick gains in property value.
Ask How the Square Footage Is Calculated
Square footage has become a controversial measurement as of late, with some measures varying by 10-20 percent. In one case, the bank of the seller did two appraisals; one said the apartments was 1,634 square feet, another said 1,741. Usually, it’s in the best interest of brokers and developers to exaggerate the size because that means a more significant sale.
Regulators have found that some developers add common areas like hallways and elevators to the square footage or measure the distance from the exterior walls instead of interiors. Using these tactics – which aren’t always illegal – can cost buyers thousands of dollars.
New Development Condo Closing Costs
- Contribution to the working capital of the building.
- 1% New York City mansion tax for properties at or over $1 million in value.
- NYC Transfer Tax of 1 percent of the purchase price for homes costing up to $500,000 and 1.425 percent of the purchase price for over $500,000.
- State transfer tax; $4 per $1,000; of the developments purchase price.
- Sponsor’s attorney fee usually $1,500+.
Buyers who finance must pay closing costs of five or more percent of the purchase price.
Because of the taxes and closing costs associated with new properties, buyers should always work with experienced attorneys. During a buyer’s market or if the development is experiencing slow sales, negotiating closing costs would be worth trying.
Risks to Buying in an Off-the-Plan New Construction
There are risks and additional costs associated with off-the-plan developments. For instance, buyers might have to wait as long as two years to move into their properties after contract signing. This can mean additional temporary housing costs, which can quickly add up. Some buyers also have trouble finding financing during these wait periods, mainly if the development is below occupancy.
Perhaps most importantly, you don’t know exactly, what you’re getting with an off-the-plan construction. You’ll receive an offering plan and demonstrations that detail the builder’s plan for each space and room. Through this, you’ll have the necessary information you’ll need to visualize the specifications of your apartment, but you may have trouble gauging less tangible qualities.
For example, you won’t know exactly how the view will look from your 12th story apartment or how natural sunlight will affect your bedroom. You can make accurate estimates, but unless you’re working with an experienced professional, you may still have a few surprises when you walk into your completed property for the first time. Other important considerations include:
They come with higher closing costs
Unlike most real estate purchases in NYC, sponsors expect the buyer to pay most of the closing costs in a new development purchase. Typically, this includes the seller’s NY State and NYC transfer taxes along with the sponsor’s attorney fees. Attorney fees could be anywhere from $3000 to $5000 while the transfer taxes are even more expensive. At present, the NYC transfer tax is 1.425% for purchases over $500,000. The state tax is $4 per $1000 of the purchase price. For those who are financing, the closing costs range from 5% to 6%.
Also, be aware that you might be asked to pay into a working capital fund which will be used to cover start-up costs for the building.
There may be construction defects
Just because the building is brand new doesn’t mean it’s free of any imperfections. Common problems found in new constructions include warped wooden floors, exterior leaks, and problems with the ventilation, heating or cooling system. Before signing the purchase contract, make sure you have an inspection done by a qualified home inspector. If that’s not possible, make the contract contingent on an investigation that satisfies you.
Also, take some time to research the architect, contractor, and sponsor to see if they have a history of litigations from construction defects or other issues. You can learn about who’s behind the project in the Identities of Parties section of the offering plan. Other than checking for previous litigations, check that they each have experience and that this isn’t their first project.
There may be a delay in the closing
If you need to close by a specific date, then new constructions may not be for you. The average closing time for purchases in NYC is 30-60 days after entering into a contract. With new developments, this can be much longer. NY state law requires that the Attorney General’s Office (A.G) approve the offering plan before the sponsor can begin marketing the condo units. However, construction does not have to be complete before this permission is granted.
Until the buildings department grants a Certificate of Occupancy, you’ll have to wait before you can move in. Also, the closing cannot occur until the offering plan is “declared effective.” Each case is different, but it’s not uncommon for new construction to take months or even years before they close.
The sponsor may not have enough funds to complete construction
It may seem surprising, but the Attorney General’s Office does not check if whether a developer has enough funds to complete a project. All that’s required for the approval of an offering plan is a disclosure that the sponsor is not putting up a bond and that the project description matches the offering plan.
Being an early buyer in a new construction might seem attractive with a chance to pick and choose your floor plan and views. Just keep in mind that it comes with a lot of risks which will need to be weighed carefully before signing a contract.
Don’t Ask for Special Amenities
One of the main problems facing the One57 tower in Manhattan is billionaire buyers asking for custom designs and touches. Instead of marble, they want hardwood floors, or the bathroom needs a tub as well as a shower. This is both complicating and slowing the building process.
Most custom touches or requests to bring in your designers will be denied. First, it could slow construction and the move-in process down not to mention cost the developer more. Next, when some buyers close and move in, they don’t want to be bothered by construction noise, workers, and dust. It’s not fair to those who accept the finishes as is.
As with all real estate, you buying a new development comes with risks and rewards. With careful research, the right questions and not overpaying you have a high chance of owning a great property.
Hire a Buyer’s Agent with New Development Expertise
We recommend having dedicated buyer agents when buying properties and especially in new developments.
Seasoned agents with industry relationships can help you purchase an off-the-plan condo before the offering; is released to the public: Schedule A and the ability to choose between the best units within the building.
They assess and analyze those that are built to outperform the broader market. Buyer agents also work with an established network of real estate industry professionals to offer appropriate referrals when necessary. This includes experienced attorneys who have worked extensively with new developments, a must-have when purchasing. Especially when considering the offering plan, contract, and closing costs.
The qualified buyer’s agents at Elika can help buyers handle the challenges of finding and purchasing high-quality properties worth buying and educated buyers to stand a much better chance of securing the right new condo Development for the right price.