Nothing says caveat emptor like new construction, which is why a good real estate lawyer can make the difference between happily-ever-after and a short sale two years later. Real estate attorney Felix Nihamin not only wants you to know what you’re getting into—he wants to make sure you don’t leave any money on the table along the way, like the client who didn't realize he could ask the developer to fork over $30,000 in closing costs.
Find Your Next Home
Here are some of the things you should know if you're buying new:
- It goes without saying that you need a mortgage contingency, entitling you to get your deposit back if you’re not approved for a mortgage. But these days you need a funding contingency too: If the bank decides the building isn’t a good risk (for example, if only 25 of 100 apartments are in contract) and reneges on your loan, you will be entitled to get your deposit back from the condo and walk away from the deal.
- The reputation of the sponsor is as important as the deal you cut: Has the sponsor done other successful projects? The offering plan will list the names of the projects. Google those names to uncover any negative press and find discussions among owners and potential buyers on online forums.
- Closing costs: Most people underestimate these by about 25-30 percent. Lots of buyers, especially from out of town, don’t realize the city has a huge mortgage tax close to 2% of the loan. Altogether, expect closing costs to come to around 3.5-4% of the purchase price, assuming your purchase is 80% financed and the sponsor pays the transfer taxes.
- Transfer taxes and attorney’s fees add up to about 2% of the purchase price. Technically these are your responsibility but in the soft market we’re in now, sponsors more often than not will agree to pay.
- Which leads to the topic of concessions: Negotiate, negotiate, negotiate. Sponsors are throwing in everything from parking spaces to storage bins to 18 months’ prepaid common charges. In fact, they are more willing to give concessions than negotiate directly on the purchase price, because price cuts can impair future sales.
- Is the building’s reserve fund adequate? The offering plan spells out the details. Sometimes the sponsor has to contribute a percent of proceeds from every sale. On top of that, you may have to contribute up to two months common charges into the reserve account at closing.
- How much is the super’s apartment? Many condos build a separate apartment for a live-in super, and every buyer contributes a percentage toward the price of the super’s apartment. Depending on the building, you could be on the hook for an amount from $2,000 to $30,000.
- Check the offering plan to see how long the sponsor intends to stay in control of the building. Sponsors give up seats on the board on a sliding scale as various sales milestones are met. Typically, once 50% of the units are sold, the sponsor starts relinquishing seats. By contrast, an 80- or 90-percent starting point is pretty late in the game.
Feeling faint? You know where to go:
Felix Nihamin, Esq.
Felix Nihamin & Associates, PC
65 W. 36th Street, 9th Floor
New York, NY 10018
(212) 502-4868 x 302