Buying a pre-construction condo can be advantageous because of better pricing vs a project that
is ready for immediate occupancy.
However, it also comes with additional risks vs a re-sale.
Take Advantage of Schedule A Pricing
The biggest benefit is getting the lowest prices by being early.
Developers need to hit milestones early on and show progress to their lenders, and as
a result often have more flexibility on price for the earliest buyers.
Early buyers can take advantage of what’s known as Schedule A pricing, which is typically
the lowest pricing available to the public.
The Developer’s Reputation Matters
Whether you’ll get a satisfactory product or not depends much on the sponsor’s willingness
to protect their reputation.
A well-known, larger developer will have a significant amount of brand equity to protect,
and will usually do a better job with your punch list of things to fix.
Expect Delays in Construction
Be prepared to wait twice as long as you expected.
Don’t put yourself in a position where you must move in by a certain date.
Negotiate an Outside Date
Have your lawyer negotiate an “outside date” into the purchase contract which allows you
to cancel the contract if construction isn’t completed by a certain date.
Watch Out for Allowed Variances
Buyers need to be very careful about allowed construction variances in the original offering
plan.
A shady developer will take maximum advantage of the allowed variances in the governing
documents to rip buyers off as much as possible.
For example, offering plans will typically allow a variance of plus or minus 5% on many
key factors such as square footage and ceiling height.
Watch Out for Commercial Unit Owners
The offering plan will often give unfair advantages to the commercial condo units which are often
retained by the sponsor.
For example, the offering plan might state that the commercial condo unit owners are
only responsible for 2% of the building’s shared utility expenses when they take up
20% of the building’s total floor space.
Or the offering plan might state that the commercial condo unit owners are maximally
liable for $10,000 in special assessments per year, meaning the cost of major façade
repairs might fall entirely on the residential unit owners.
Negotiate Closing Costs
Remember that sponsors typically expect new construction buyers to pay the sponsor’s
transfer taxes in addition to the sponsor’s attorney fees, both of which are typically
paid by the seller during a normal re-sale deal.
Fortunately, you can negotiate these plus other closing costs such as the buyer’s
NYC Mansion Tax.
Negotiate the Contract Deposit
The contract deposit is typically 10% of the purchase price in a regular re-sale deal,
but can sometimes be structured to increase to up to 20% over time as the project nears
completion when buying a new construction home in NYC.
Fortunately, the amount of the contract deposit is negotiable just like everything else in
real estate.
Watch out for Unexpected Notices to Close
Since a pre-construction condo purchase may take many months or even years to close, buyers
can easily be surprised by a notice to close from the sponsor because they’ve forgotten
about their purchase.
It’s important to understand that new construction purchase contracts allow the sponsor to send
a notice to close as soon as certain conditions are met, such as obtaining a temporary Certificate
of Occupancy.
You’ll typically be given 30 days notice on the closing date, which can be an issue
if you’re on a long vacation.
Make sure your lawyer negotiates the right to adjourn for 10 or 15 days without penalty.