As a new development expert, I am always impressed with the creativity and ingenuity of developers who put together new sites. 1399 Park Ave is an assemblage of six lots, resulting in a stunning 23 story glass and architectural concrete condominium with numerous cantilevers.
Buying in a new development is appealing to many. These beautiful, clean, glass facades encasing designer interiors in starchitect towers frequently offer all the latest amenities. If you live in a prewar, with limited electrical amps or a master bath which is not ensuite, you may long for modern conveniences in lieu of old world charm. However, buying in a new development is very different than purchasing a resale. If approached wisely, you can come out ahead. But, if you fall in love before you appreciate the differences, you could be disappointed.
Let’s start with timing. Developers start selling apartments anywhere from six to twenty four months before they are actually ready to be inhabited. You will need patience and, if you are planning on getting a loan, you may want a long term rate lock. Today, there are some banks that will give you a twenty four month lock at current rates.
Another difference is closing costs. When you purchase a new development unit, you will be asked to pay transfer taxes, which are typically the responsibility of the seller. These taxes range from 1.425% to 1.825% of your purchase price, depending on the cost of your unit. The government then adds the amount of your transfer taxes to your purchase price, and if the combined number is more than $1 million, you trigger the 1% mansion tax. New buildings also need to build up their working capital fund, and it is not unusual for the buyer to be required to give two to three months’ worth of common charges to the fund. The sponsor’s attorney’s fee can range from $2,500 – $3,000, depending on a number of factors, including whether or not you are financing, thereby generating additional paperwork. On the topic of financing, keep in mind that many developers will not give a financing contingency; if your mortgage does not come through for any reason, you are required to pay cash.
While all this news of increased closing costs may dampen your ardor, you needn’t be dismayed. There are plenty of reasons to buy in a new building. The first thing to do is be brave, and buy early. Typically, the best prices are offered in the beginning, as the developer needs to gain sales momentum so others feel emboldened to purchase. Many developers will begin sales slightly lower than the market. In New York, most banks won’t lend unless a building has 50-75% of the units in contract, so getting early sales going is crucial, and the sponsor will likely take a slight hit for those early signatures.
Don’t go to the sales office without a broker who knows how to purchase new development. The developer will be the person paying your broker’s commission, not you. Your broker could end up saving you money in the long run, be it through understanding how to buy off of floor plans providing you the best possible apartment to meet your goals, or knowing when and what to negotiate.
The third thing you will need is patience. Even the best developers who hold to a strict construction schedule can be slowed down and miss their intended closing date by a month or more due to things beyond their control. A bad winter or a slow building inspector can hold you back for weeks. As long as you are prepared and not in a hurry, your will be rewarded with a beautiful new home!