29 Mar Essential Questions to Ask While Shopping For a New Construction Condo
Not only will you pay a premium to buy new, you’ll also take a risk on the unknown and untested, and likely have to wait a while between contract signing and closing, especially if you commit well before your place gets built.
Even if you’ve bought an apartment in NYC—even a condo—new development “is a completely different animal,” says Debbie Zolan, head of sales for DUMBO’s 51 Jay Street, on behalf of Halstead. (The building, which is 70 percent sold and began sales at the beginning of last year is expected to open later this year.) To boost your chance of getting what you pay for—and head off any nasty surprises—read on:
1. What’s the exact plan for the building?
Before a developer can start selling new condos, their “offering plan,” which describes the development plans in detail, must be approved by the New York Attorney General’s office. Details include everything from what the developer will use for the facade to how many trees they’ll plant on the grounds. The idea is to protect buyers from any surprises and hold the developer accountable—if they don’t deliver as promised, purchasers can complain to the AG or sue.
The sales office will have a copy of the plan, which is typically several hundred pages long. Your attorney should review it carefully, keeping an eye out for unusual provisions, costs, and other details an inexperienced eye (yours) might miss.
Oftentimes you can “borrow” the sales plan for a couple of hundred dollar refundable deposit fee before your contract goes out and it’s officially reviewed by an attorney.
“There are certain things you should take a look at early on,” says Robert Braverman, a co-op and condo attorney at Braverman Greenspun. One of those is the offering plan’s “special risks” section, which covers things like reserve-fund requirements and terms for purchasing a super’s unit. (Read here for more examples of “special risks.”)
You’ll also be able to find out if the developer has reserved the right to refrain from selling any units, Braverman notes, which could mean the building would end up as a hybrid rental/condo if the market takes a turn for the worse.
It’s also important for prospective purchasers to check the offering plan for its engineering report, says Alex Kalajian of Solstice Residential Group, a property management company that manages young condo buildings after control has passed from the developer to the owners.
“You want to make sure the building construction details were developed by reputable and experienced architects/engineers and that a licensed professional has put their name to building,” says Kalajian. “The offering plan will also contain budgetary reports from the engineers that will lay out the first year’s operating utilities costs–a large part of the buildings operating costs. If the information is missing or inaccurate, it’s a problem, because those budgets will relate directly to your common charges, and, unfortunately, first-year operating budgets, which in our experience are often off by as much as 20 to 25 percent.”
2. What’s the “outside date”?
If the building isn’t completed by a certain date (beyond when it’s scheduled to be), you can usually get your down payment back. That date is called the “outside date.” It’ll be laid out in the purchase agreement, but it might be worth asking ahead of time, says Zolan. “Sometimes buyers can negotiate a slightly earlier outside date,” she says.
3. What’s the developer’s track record?
Before you make a deal, find out as much as you can about the developer. Are they involved in any lawsuits? What other buildings have they completed? Have buyers generally been happy? Use Google (an obvious, but powerful tool), and search through Yelp and StreetEasy forums. (More tips here.)
“There are always people who write the proverbial bad review, so you need to do your homework to decide what’s a legitimate complaint,” says Julia Boland, a broker with Corcoran, who specializes in new development.
Be sure to look up the sponsor—which is the legal entity building the condo, often affiliated with a development firm—as well as the principals of the firm, who will be listed in the offering plan, and their past projects, suggests Braverman.
4. Any closing costs I should know about (e.g. a super’s apartment)?
Sometimes developers will pass on unexpected extra expenses to buyers, including part of the cost of the super’s apartment (that tends to come as a surprise to buyers, says Zolan, and can be well into thousands of dollars), the building’s insurance costs for its first year, and attorneys’ fees for preparing and filing the offering plan. You want to make sure you’re not surprised by any of these. They’ll all be listed in the offering plan.
5. How about concessions?
Concessions are almost like hidden perks or bonuses developers will give to a buyer. They don’t affect the sales price, but they can save the buyer some money (think things like those aforementioned closing cost rebates, including transfer taxes, mansion taxes and mortgage recording taxes, and free storage or parking spaces).
Concessions are largely dependent on the market and the neighborhood, but it doesn’t hurt to ask. “You’re not insulting anyone,” says Zolan. “My job is to take every offer to the sponsor. I need to manage buyers’ expectations, of course, but at the end of the day, you want to get offfers.”
6. What building extras am I willing to pay for?
In an effort to lure buyers, some developers have packed their projects with over-the-top amenities. If your heart is set on that doggie swimming pool, go for it —but you’ll be paying for it in the form of monthly common charges, so be sure it’s worth it.
“Think about what types of services you really need,” advises Stephen Alton, a designer and architect behind the interiors of 400 Park Avenue South. “Some—like swimming pools—cost a lot. Something like a wine cellar can be good since there’s almost no maintenance on it, and the developer is just using space that’s already there. It’s the relative value of it.”
Also, keep in mind that developers tend to lowball the ongoing costs of amenities in their offering plans. Once the first year is up and reality sets in (and building management realizes that they may need more doggie lifeguards), expenses tend to go up, taking common charges with them.
7. If the development comes with a tax break, when does it expire?
While tax abatements seem to be getting slowly phased out, many newer buildings stil offer the so-called 421A tax abatements, which will cut down your monthly property tax bill, often significantly. It’s usually easy to find out whether this kind of perk is being offered—it’ll be all over the marketing materials, and the sales manager won’t hesitate to let you know about it.
The real question to ask is how much you’ll be paying in taxes down the road. These tax breaks are only in place for a finite period of time—often 10, 15, or 25 years—and gradually phase out every couple of years. Depending on how long you plan to stay, they can also affect the resale value of the place.
51 Jay Street, for example, has an “anticipated” 15-year abatement, which is typical in Brooklyn, says Zolan (10-year abatements are more common in Manhattan). Note: tax abatements don’t go into effect until the first closing.
8. What does the model apartment look like?
For buildings that are still under construction, developers often create off-site sales offices that feature sample bathrooms, kitchens and other elements to give you a sense of finishes, appliances and bathroom fixtures. When the building is closer to being done, they’ll often dress up one of the units as a model apartment to show you a version of the finished product.
“In a sales unit, you can see the quality, pretty much, of what you’re going to get,” says Alton. “You can’t see the windows or views, obviously, but you get an idea of the finishes.”
But remember that it’s likely not the same layout as your apartment. Ask the listing agents for specifics on how your kitchen or bathrooms, for example, may be bigger or smaller.
9. Does the design fit my lifestyle?
When you’re looking at the model apartment, don’t be afraid to get down to the nitty-gritty. “Open the drawers and really take a look,” Alton says.
If you rarely cook, a small kitchen with limited cupboards may be just the kind of sleek, space-saving layout you’re after. But for the gourmet family of five, “you may want to make sure you have small conveniences like a place to put a pull-out trash can or enough drawers,” Alton says.
Also, pay particular attention to light. “A lot of buyers are not sensitive enough,” he says “They just want to know that when you turn them on, they work. But you should also be judging whether there is the right amount of light, that there are lights in the bathroom, or under the counter if that’s what you want. With concrete slabs up above, lighting isn’t going to move, so you need to be okay with what you have.”
10. Can I get a mortgage?
It’s not impossible to get a loan when buying in a new development, but it can be a bit trickier than one for an existing apartment. Banks are wary of lending to buyers in under-construction buildings because of Fannie Mae guidelines; they often won’t issue mortgages unless the building is already at least 51 percent sold and meets certain minimums for owner-occupied units, among other requirements.
“Some financial institutions cannot do new condominium financing until the building has two years of financials with the homeowners paying common charges,” mortgage banker Robbie Gendels of National Cooperative Bank (FYI, a Brick Underground sponsor) explained to Brick.
Luckily, New York City developers deal with this all the time—usually by teaming up with a “preferred lender” that will line up mortgages until the building meets Fannie Mae’s specifications, and stay on afterward.
And on average, mortgage rates for new developments aren’t any higher than for existing apartments—currently about 3.375 percent for a 30-year fixed rate—but your rate might depend on your timing, says Rolan Shnayder of Citizens Bank, which specializes in new developments.
If you buy when the building is only 25 percent sold, your rate will be higher than if you buy when it’s 50 percent sold (it can vary by about 0.5 percentage points), he explains. However, typically, you’d also get a lower price on your apartment, and you could refinance down the road.
As for getting approved, it can often be quicker and more straightforward than getting a loan for an existing apartment because the bank has already approved the building. To see if you qualify, get in touch with the preferred lender directly.
11. When can I move in (for real)?
“In a new development, it could be 12 to 18 months before the building is ready to close and you can move in,” Corcoran’s Boland says. While the sponsor “can give you a target date, even the most experienced developer who runs on schedule can run into delays which are out of their control.”
That’s one of the most difficult things about buying a new development says Zolan. “You have to be flexible.”
Jason Wachob, who signed a contract on an apartment at 51 Jay Street last year and is waiting to move in says that wait hasn’t bothered him, mostly because he and his wife don’t have kids yet, and they’re enjoying cheap rent in a small one-bedroom and their landlord has given them a clause to get out of their lease early. There’s is a best case scenario, Wachob recognizes. And, in the meantime, the wait has given them time to save for furniture (their new apartment will be much larger), and build up their Pinterest boards.
“There are also studies that show that anticipation of a move is often when you’re happiest,” says Wachob.
Plan for at least a three-month delay from the target closing date, Boland suggests, so you don’t find yourself moving out of your old place before the new place is done. You could also try to negotiate a “drop dead” date by which you’d be entitled to cancel your contract and get your money back if the unit isn’t ready.
And stay in touch with the listing agent, checking in on status. “You’ll also be notified when your 30 days away from closing,” says Zolan.
12. What kind of retail will the building have?
Mixed-use buildings—which combine residential apartments with offices, hotels, stores or restaurants—are common in New York. It’s worthwhile to ask what your developer has planned for any space in the building set aside for commercial use so you don’t get stuck with something noisy, stinky or otherwise unpleasant.
In some cases, a building will prohibit less desirable establishments from opening up. In other cases, the developer could use the space for a high-end gym or grocery store—which may feel like another amenity. But it’s possible you’d get stuck with a fast food restaurant or loud nightclub.
13. Who are the neighbors? What’s the noise going to be like?
Take a look around the building. Are there empty lots? “If there are, there will likely be construction, and you need to think about how that will affect your quality of life and, also, your resale value,” says Braverman, the attorney.
In neighborhoods that are booming and gentrifying, this may be even more of an issue. “I’d recommend taking a look at Google Maps, and walking around the project radius at different times during the day. You’re not insulated from what’s going on around you,” says Donald Brennan, the principal of Brooklyn-based brokerage Brennan Realty Services.
Ask the sales office staff as many questions as possible about the neighbors, suggests Brennan. Who lives next door? Is it the owner of the house or a renter? What about things like dry cleaners and supermarkets? Are they close by?
Wachob, who bought a brand-new apartment in DUMBO, said the fact that he lives and works in the neighborhood helped him know the building and the block. “Don’t only look at the floorplan,” he advises. Go check out the lot during the day and at night. You have to do your homework, he says.
14. What’s the source of heat and air conditioning?
Some systems have drawbacks you wouldn’t think of, aside from their relative abilities to heat and cool your place.
“On the lower end of the scale there are PTAC units,” says Boland, referring to the heating and cooling apparatus. “While some of these can be attractive and even efficient, others can be noisy, so make sure you turn them on to see how you feel about the noise level. They also stick out into the room so you want to make sure you account for that when you are planning where your furniture goes.”
Meanwhile, heat pump units inside the wall “are typically quieter and more efficient, and their placement can permit larger windows. In super-luxury buildings you may have even better systems—true central air systems—with very sleek vents and possibly humidity control to protect your artwork,” she says.
Make a value assessment based on your own preferences, says Brennan: “If forced hot air is something you don’t like, and you prefer radiators, be sure to ask about it.”
15. What’s the soundproofing like between apartments?
This can be a little bit trickier to check in an empty building (and impossible in one that’s not yet completed). But “you can always have a friend go upstairs to the apartment above you and walk around in high heels or with a heavy step to see if you hear anything,” says Boland.
Also inquire about the plan for sound attenuation between the apartments. “An excellent construction detail is a soundproofing underlayment in flooring,” says Boland. You can also ask about how many panels the windows will have, so you an make sure noise from the outside stays outside.
16. What’s the experience of residents so far?
If people have already started moving in, they can be a wealth of information. “If permissible, visit the building during the evenings and try and reach people in the amenity spaces or even knock on doors,” says Kalajian. “You really want to ask someone who’s actually lived through a rain storm, used the facilities, turned on the shower and used the garbage disposal.”
Kalajian also suggests trying to ask the super if owners have been complaining about anything in particular. Certain red flags can indicate that a building has structural issues, including leaks through the heating/cooling systems and windows; ventilation problems; and mechanical noises or pumping sounds.
17. Can I rent out my place?
Some developers prohibit renting out a unit for up to a year after closing; others limit the use of amenities to owners. If you may find a tenant down the road, double check the building’s policy.