Looking for New Developments in Manhattan and Brooklyn can be overwhelming, mainly if you haven’t chosen a buyer’s agent and if you have little knowledge of the recommended builders. Buyers often opt for off-the-plan new construction properties, but new developments have their set of challenges.
The New York, real estate market, is unique for several reasons. Due to steady high demand for condos and coops, analysts often rank New York as a significant center for real estate investment.
If you buy a well-built new construction developed by a reputable developer, you can count on a good return. Buyers have a relatively broad set of options for purchasing properties in New York including off-the-plan purchases, new construction can be an extraordinary investment when choosing the right building in the right location.
However, the competitive nature of the market doesn’t always work in buyers’ favor. Many buyers have trouble scheduling a showing or getting accurate information on new developments.
First-time purchasers might not understand the advantages of condominiums versus co-operatives or vice-versa, which can lead to confusion during the purchasing process. Off-the-plan properties have some distinct features and sales can fall through under certain circumstances, leaving buyers frustrated and confused. Finding and buying a new property can take a tremendous amount of time and energy.
Fortunately, the qualified buyer’s agents at Elika can help buyers handle the challenges of finding and purchasing high-quality properties, and educated buyers stand a much better chance of securing the right New Development for the right price. If you’re considering a home or real estate investment in New York City, here’s what you need to know about buying in new developments resales.
The Basics of New Developments: Condos and Co-Ops
To make wise investments, you need to know the advantages of the two major property types in New York City and how these advantages relate specifically to new properties.
Most buyers are already somewhat familiar with condos. By purchasing a condo, you take ownership of the physical property. New off the plan condos can build value quickly depending on their size, location, and some other factors.
Coops work differently; you do not own the property, but instead, you own shares in a corporation comprised of the other residents of your building. You will usually need to apply to a cooperative board of directors in order gain the right to purchase shares. This application process is often more involved than the petitioning process for condominiums. However, new developments do not have this requirement. Like condos, coops can build value quickly depending on location and other factors.
Regardless of whether you choose to restrict your search to one type of property or another, you will need to decide whether to consider off-the-plan properties and research your options appropriately before making an offer.
Research the Developer
Reputation says a lot about what you’re getting into with new development. Look at the past buildings by the developer; 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.
Understanding Off-The-Plan New Construction Properties
Off-the-plan properties are not entirely built at the time of their purchase. Many New York buyers and in particular foreign investors prefer off-the-plan properties for a maximized return on investment or to purchase 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 purchasing schedule A pricing in the right building can potentially see quick gains in property value.
Called the “Sight Un-Seen” market, 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 miss out on the more desirable floorplans and views as well as lower pricing. Although new developments are usually priced at a premium to resales most desirable developments will amend prices even higher as they sell batches of inventory until entirely sold.
If the market is strong, 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 — at a better price. However, this tactic is riskier because you have to trust the developer and market even more.
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. Often 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 interior. Using these tactics – which aren’t always illegal – can cost buyers thousands of dollars.
The Advantages of New Developments include
Versatile Floor Plans – If you want to design your floor plan, you will 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 thus finding the ideal floorplan is 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 will need to pay higher closing costs and a down payment of about 10% 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. Generally, on average 3-5 pricing amendments are filed before the development is sold through thus the earlier you by preferably from Schedule A you stand to make the most profit before completion.
First-Time Residency – As the owner of an off-the-plan property, you will be the first person to live in the space. For many buyers, this exclusive benefit is well worth a premium, although this advantage apparently 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, and as a result, buyers looking to invest often consider off-the-plan properties before considering resales.
The Potential Complications of Off-The-Plan Apartments
There 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 the date of purchase. This apparently means additional temporary housing costs, which can quickly add up to the city. Some buyers also have trouble finding financing during these wait periods, mainly if the development is below occupancy.
Perhaps most importantly, you do not know exactly what you’re getting with an off-the-plan construction. You will receive an offering plan and demonstrations that detail the builders’ plan for each space and room, so you will have the basic information that you need to visualize your apartments specifications, but you may have trouble gauging less tangible qualities.
For example, you will not 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:
Building Sales Numbers– If your building’s units do not sell, the building developer may abandon the project. Even if they sell, you may have a more terrible time getting financing if more than half of the units are still available. You may need to obtain a certificate of residency from the developer.
Certificate of Occupancy– You may not be able to close on the apartment unless a local government agency issues a certificate of occupancy or building department certifying a building’s compliance with applicable building codes and other laws and indicating it to be in a condition suitable for occupancy.
When buying new, you can also expect to pay additional fees Closing costs for new developments include
- Contribution to the working capital of the building.
- A 1% New York City mansion tax for properties over $1 million in value.
- NYC Property 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.
- A state transfer tax of $4 per $1,000 of the developments purchase price.
- A sponsors attorney fee, typically $1,500.
Buyers who finance must pay closing costsof 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 and buyer’s agents. As is the case with resale purchases, many prices are negotiable, mainly if the buyer has to wait to move in.
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 at times are willing to offer lower prices to attract occupants, and these low property prices make new developments an excellent choice for investors willing to do adequate research to assess risks.
For some buyers, however, the higher closing costs of new developments make them an unrealistic option. You will need to decide whether you are willing to take on the potential risks of off-the-plan properties and by assessing your higher closing costs.
New properties can fulfill your goals and provide excellent investment potential, but you need exclusive buyer representation to carry through with an off-the-plan property purchase.
Find accurate building information
You will know whether each property is in a converted commercial building or a newly built residential building, which can quickly give you an idea of what you are buying. Knowing the history of your building is an essential part of making a purchase, and a qualified buyers agent can quickly generate an accurate report to bring your up to date.
Learn about the reputations of the businesses behind the construction and sale of the property
Some off-the-plan purchases fall through, leaving buyers without any options. By learning about the companies behind the development, you will understand whether there is a severe risk. Elika buyer agents will also review construction claims and time frames for accuracy. When you know the renovators’ reputation, you will know what to expect on the completed property.
Access & Visiting your potential property
Elika Associates has dealt with all major developers in New York City and can extend timely preferred access. Your agent will schedule viewings, saving you the time of trading phone calls and setting up on-site appointments.
As mentioned above, many buyers have trouble finding mortgage financing for new developments. Most well-known developers can secure pre-approved lenders and this in most cases the best option when funding. That said make sure to ask if they have more than one pre-approved lender and shop between the possibilities for the best rate possible.
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 due to cost and desire to please other tenants. First, it could slow the move-in process down and cost more. Next, when the new development lets some tenants move in, it doesn’t want them to be bothered by construction sounds, workers, and dust. It’s not fair to those who accept the finishes as is.
As with all real estate, buying a new development comes with risks and rewards. With careful research and the right questions, you could be in the residence of your dreams, and not have to overpay.
Why Buyer’s Agents Are Essential when purchasing New Developments
We recommend dedicated buyer agents when buying properties and especially when researching new developments.
Seasoned buyer agents can be valuable resources because they have the relationships to get you in early sometimes before a property comes to market. Assess the 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 New York attorneys who have worked extensively with new developments—a must-have when purchasing, especially considering the offering plan, contract, and closing costs.
By working with a buyer’s agent who understands your goals, you will have the resources you need to identify the best properties.