Maneuvering thru Perils of Buying a Pre-Construction Condo in NYC
If you are interested in buying a home in New York City, a very tempting opportunity that can arise is to purchase a condominium (“condo”) during a pre-construction stage. However, this is rarely a smooth or a sure path. The following are among the many perils that you should consider before purchasing a pre-construction condo in New York City:
Renderings are Sales Tools, using Artistic License
Artist renderings of a future condo building are used to entice buyers. When tempted to opt in on a new condo in pre-construction, keep in mind that artistic license is allowed in the renderings and offering materials. An artist’s representation is a clever sales tool designed to conjure a sense of elegance and luxury. It’s natural to be drawn in, when thinking about your future home. To avoid the possibility of crushing disappointment, focus on realities instead of renderings. Features shown could depict costly upgrades that may not be available with your particular unit. Other details to consider when looking at renderings include the following:
- Ceilings usually look higher and interiors look more spacious than they are in reality. The offering plan provides the dimensions of your unit.
- The amenities may also look more grandiose than they actually are. If a doorman and a large gym are important to you, check to see whether these features are in the actual plans and what the details are.
- Part of what you are getting when you purchase a condo is the façade. Check to be sure a warranty is provided by the developer, to cover exterior renovations. There are different qualities of finish, and you should understand what you’re signing on for, inside and out.
- Even the landscaping shown in a rendering can lead to a misunderstanding about a new home. Find out what exactly is in the proposed plan for landscaping, to determine whether it is suitable for the size of the project.
Want to See your View? Drones are now Snapping Photos from Would-be Windows
If you are like most prospective buyers, you are very interested in knowing what your view will be from the apartment you are considering buying in pre-construction. Many developers are now using drones and high-definition cameras to capture the anticipated views from the apartments to be built. It has actually become common to provide this perspective to potential buyers.
Research the Developers’ Track Record
The “Offering Plan” for a condo in pre-construction leaves room for many potential changes that may become cause for buyer’s remorse. The best way to avoid having to live with unwanted construction changes and defects is to research the track record of the construction professionals responsible for making the blueprint a reality. What is the reputation of the project architect, the engineer, and the construction contractor? Without evidence that these major players inspire a high degree of confidence, it can be very risky to sign on during pre-construction.
Understand Tax Abatements
Tax abatements are designed to promote construction, and they are passed on to buyers, as well. When exemptions of 10 to 25 years have run their course, household budgets can be put in a serious bind. It’s important to purchase in NY pre-construction phase with an understanding of what taxes will eventually be and factor in future cost as opposed to costs during tax abatements. In simpler terms: Buy what you can afford after tax exemptions have expired. Also, during the tax abatement period, contest property tax assessments; don’t wait.
A newly constructed condominium doesn’t necessarily mean there are no defects. Many different problems can arise in new construction which can’t be foreseen when purchasing during pre-construction. For example, vents for heating and cooling may be missing from a bedroom, wooden floors could be warped, and there could be exterior leaks. Because you can’t have an inspection done prior to signing a contract, it’s essential that a contract be contingent upon an inspection that satisfies you, the buyer.
Maneuvering the Challenges of Getting the Punch List Completed
The Offering Plan for a pre-construction condo always details what constitutes “completion” of an apartment. Without fail, it is provided that an apartment is completed when only minor issues remain, such as paint marks and dings in walls. These are noted on an inspection sheet when a walk-through is done by the purchaser. In theory, they will be addressed after closing within a reasonable period of time. These “punch list” obligations tend to be ignored, without due diligence by buyers. The help of an experienced real estate agent can help you avoid the headaches involved with neglected punch lists.
Another Sticky Point: Measurement of Square Footage
There are no hard-and-fast rules about how to represent the square footage in an apartment. It really depends on the developer of the project. Some measure from the exterior walls, which means un-usable space is figured in. Balconies, storage areas, and even a portion of the exterior hallway may or may not be included in square footage. Between 10 percent to 40 percent of your square footage could be lost in creative measuring. To avoid the surprise of a much smaller living space than anticipated, understand upfront precisely how the developer is measuring your apartment.
The Fees – Sellers’ Attorney Fees, i.e.
The closing costs involved in the purchase of a new construction condo are higher than in re-sale. The following are typical closing costs for new construction. It’s important to negotiate with the developer or sponsor, to ensure that he or she covers the cost of his or her own attorney’s fees and transfer taxes. Otherwise, the usual costs can include the following:
- Transfer taxes, at approximately 1.825 percent
- Capital contribution fees, which vary
- Contribution to the apartment for the building’s resident manager, which varies
- Sponsor’s attorney’s fees, which are usually between $3,000 to $5,000
Know the Fine Print
Buried within the overarching offering plan are details that could mean a lot to you. Be sure you know exactly what you are getting into. For instance:
- Can you have pets?
- What are the actual ceiling heights in your unit?
- Do you have any say about finishes?
- Are you in charge of your own thermostat control?
- What are the subletting rules?
- Which custom touches are the developers willing to add?
Be Aware of Expiration Date of Financing Commitment
You may wait for a long time to get into your new apartment, but there are times when the wait is unreasonable. Banks think so, too; loan commitments have expiration dates.
The “outside date” is a purchase agreement made in pre-construction that includes an outside date by which construction must be completed. If the projected deadline isn’t met, you can get your down payment back, as long as such a stipulation is included in the agreement.
There is also a “Drop Dead Date,” which is similar. It’s important to include a “Contract of Sale.” If there isn’t a Certificate of Occupancy or if none of the units has closed by a certain date, you can get out of the deal and get your deposit back. This prevents the sponsor from hanging onto your 10 percent deposit time without end.
Be Wary of Preferred Lenders
When seeking financing for your unit, the developer may recommend a “preferred lender.” This is a bank used by the developer to obtain a mortgage. When issues arise, the bottom line is that there is a conflict of interest and the mortgage broker will show favor to the developer over individuals. Even if there is a claim that a deal is beneficial to all parties, it’s doubtful that’s actually the case. The best thing to do is choose your own broker or lender.
All Things Considered, Benefits of Buying First
The potential negatives don’t necessarily outweigh the benefits of being one of the first to buy an apartment in a NY condominium in pre-construction. The following are some advantages to buying a new construction condo:
- It’s possible you could get one of the better deals on a condo. It’s common for developers to need to pre-sell a certain percentage of apartments in order to obtain needed construction financing. Due to the urgency of the need in a very early stage of pre-construction, those who purchase early may be offered very appealing prices.
- In older buildings in New York, it is typical to be required to pay substantial common area maintenance items, such as roof replacement or repainting. In a new condo, you can avoid these costs.
- In your all new home, you will have the benefit of all new appliances, brand new plumbing fixtures, and a whole new kitchen.
- When you buy prior to completion of construction, you may have the option of choosing preferences for finishes. The opportunity to choose bathroom tile, kitchen surfaces, wall paint colors, etcetera, can be worth the hassles.
- The floor plan that’s ideal for you could be sold out, if you don’t make an early purchase.
- You may have choices that help you avoid undesirable situations. For example, you could find out what features the floor above you has. If it has a balcony, there is the possibility that it will create an unwanted amount of shade. Study the entire floor plan and consider such things as where the elevator is in relationship to your unit and where the garbage chute is.
- If you are in on pre-sales, you may have more negotiating power. Watch for words that indicate substitutes that could be made during the finish. Remove such language, with the help of your real estate expert, so that you don’t end up having favorite features replaced with lackluster substitutes.
Getting in on pre-construction advantages can be exciting, and being aware of the potential perils will help to ensure that your wait is worth it.
For experienced representation in pre-construction purchase transactions, contact Dilendorf & Khurdayan. Schedule your consultation today by calling 212-457-9797.