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Buying in a New Development – What You Need to Know
Unless you never look up while you’re walking (and that’s totally possible given that most of us are New Yorkers here…), it’s quite hard not to notice all the new glass, steel and concrete that’s going up all over the city. New development has been booming throughout New York City for the past couple of years, and the inventory has pretty much hit critical mass.
The thought of an all new building can be alluring – new appliances, new floors, new bathrooms, new windows, new…well…everything.
But unlike resales, new development is a different kind of animal. So before you go skipping into one of the many glitzy (and admittedly super fun) sales offices, let’s get you clear on how they differ from your usual condo sale.
Closing Costs Are Higher
In a new development, there are certain costs that buyers are expected to pay that you wouldn’t ordinarily have to pay in a resale transaction. They tend to be the following:
- Transfer Taxes
- Sponsor’s Attorney’s Fees
- Working Capital Contribution
- Offering Plan Reimbursement Fee
- Resident Manager’s Apartment Fee
And this isn’t an exhaustive list. There could be more.
Because of these extras, you’ll need to budget a higher amount for your closing costs – more like 5% to 6% as opposed to 2 to 4%.
Your Financing Options May Be More Limited
Banks tend to be a bit hesitant to lend in new projects. In fact, most want to see the building at least 50% in contract before they’ll agree to finance any purchases in the building. Frequently, the developer may have a couple of preferred lenders as part of the project so financing will be available. But unless it’s at least 50% sold, you’re likely to be limited to the sponsor’s options (and some portfolio lenders), who might want a higher interest rate.
You May Have to Wait to Move In. And Wait. And Wait. And Wait Some More.
Occupancy estimates are just that – estimates. Even the absolute best of developers can experience delays, especially since they’re dependent upon approvals from the Department of Buildings. A building can be pretty much ready to go but you still won’t be able to move-in until the Department of Buildings grants it a certificate of occupancy. And oftentimes, they have a lot on their plate which can cause big delays.
New Development Does NOT Mean Free from Problems
Construction issues can and do happen, even with developers that have stellar reputations. Often, you can’t discover whether or not there’s an issue with something until someone uses it. And certain items (despite a thorough walk-through and inspection) won’t get used until someone actually lives in the apartment. Fortunately, your attorney can negotiate on your behalf to protect you in the event of such occurrences before you sign your contract. But, the bottomline is this – don’t be surprised if something doesn’t work properly, even though it’s new!
Now, all of this being said, living in a new development can be amazing, and they are absolutely worth checking out. You just need to be sure you understand what you’re getting into, before you get into it 😉
Have more questions about buying a new development in NYC? Feel free to contact me. I’m always happy to have a chat!