If you’re the kind of buyer who wants to be the first occupant and wants the hassle-free ownership that comes with buying a new place, new construction may be for you.
Are you a new development type?
Prewar construction suits lots of people. They adore the charm and the architecture in high ceilings, plaster ornamentation and handrails rubbed smooth by thousands of hands. Though these may be “used” goods, they simply don’t build them like that today, making prewar unique and harder to come by.
“In Manhattan more than anywhere in the world, people buy what reflects them,” Darren Sukenik, managing director of luxury sales at Prudential Douglas Elliman, told The New York Times. “You really have to wear it like a loose garment and it has to suit you.”
But, unless they’ve already been renovated, those older apartments can be a project. If tearing down walls, restoring wood floors and updating electrical panels is not on your to-do list – or in your budget – new construction may be a better fit.
Should you buy early or wait?
- Pros of buying early: Being among the first to invest in a new building will give you the most choices in terms of floor plans, views and exposures. Your willingness to invest in a new project may also provide the opportunity to buy at a lower price because developers like to get a few contracts signed and under their belt early on. Why? Because they may have lenders who need to see progress and they want to be able to go to the market announcing that they have some sales. Finally, it’s not uncommon for developers to release units in batches. And, depending on how the first round or two goes, they will likely raise the prices.
- Cons of buying early: Being an early buyer may mean a good price, but it does come with risks. The project may not do as well or the market could slow down, leaving you with a signed contract. If you are getting a loan, mortgages can be difficult to get in new construction, until a certain percentage of the project is sold. For this reason, many developers arrange for a “preferred lender” to provide financing. But the pricing may not be preferred.
The other downside to buying early on? You may be making a decision off a floor plan. That simply won’t fly for some buyers who want to touch and feel. If the building is under construction, you may be allowed a hard-hat tour, but likely only after you’ve signed a contract.
The upside to waiting? If you wait until the project is farther along, you can get a better sense of how the project is received by the market. You will likely get a chance to walk the unit and see a variety of apartments in the flesh. The downside to all of this is that you will likely pay more than the early buyers.
Know the contract deposit amount and the timeframe
Typically, you’ll be required to make a minimum 10 percent down payment when you go into contract, but oftentimes it’s upwards of 20 percent. Once you sign the contract, that’s a non-refundable deposit and the money is tied up until the closing.
Closing dates are always approximate and it’s not uncommon for the developer to push it out a few weeks or even a few months. Construction projects generally take longer than expected. If you are buying new construction, be flexible on your timing and be prepared to put the deposit out months or years before you close.
Calculate closing costs
In addition to typical buyer’s closing costs, buyers in new developments pay fees that sellers generally pay in re-sales: transfer tax and sellers’ attorney fees. In total, these could be a few percentage points of your sale price. Also be aware that you may be required to pay into a working capital fund (generally equal to several months’ common charges). This fund covers startup costs for the building’s operations.
You’ll get the opportunity to do a punch list
Prior to closing, the buyer, their broker and a representative for the developer will walk through the apartment and compile a list of things that need to be completed. This list could involve small construction issues or larger mistakes. This is the buyer’s opportunity to make sure the apartment is delivered to them as it should be.
Punch list items may include painting mistakes, scratches on the floors, missing hardware, appliances that are installed incorrectly, faucets that aren’t working right. Mistakes happen in new construction. Many times they are small but sometimes they can be large enough to hold up the closing.
The walk-through is also the time to make sure that any finishes or fixtures that you selected were correct. With a punch list, you get one shot to go back to the developer with a list of repairs prior to the closing. Once it closes, unless there are major defects, it’s unlikely that you will get the attention of the developer for small items.
Research the developer
In the case of new development, you are buying from someone who is in the business of building and selling real estate. That presents the unique opportunity to do a little investigation. What projects have they recently completed? What is their reputation as a developer? Do they do quality work?
By checking public records you can see if they have ever been sued, whether the suit is something to worry about or if there is a history of building defects. Your home is one of the largest investments you’ll ever make, so it’s important to dig around and find out as much as possible.
Search online for news articles, blogs, reviews and testimonials. Have the developer’s past projects been completed on time? Are reviews of those projects largely positive or negative?
There is a lot of new development in New York City and with a little bit of research, you can find something based on location, size and price.
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