By the time apartments at 50 West officially hit the market in early July, almost a third of the 191 condos in the glassy Battery Park City tower were already unavailable—snatched up during a 30-day period when developer Time Equities offered them to a select waitlist of "friends and family."
As if buying a New York City apartment isn't hard (and expensive) enough, more and more new developments are hitting the market with a sizable chunk of units already reserved, making it even more difficult for the average buyer to sign a deal. Think of it like the VIP line of the apartment hunt—and a sign of a condo market on fire.
So how do you get to the head of the line? And do you want to? Read on.
WHY YOU WANT TO GET IN EARLY
It's easy to see why developers try to line up a few deals before the official launch of a project: it creates the illusion (which may very well be legit) that there's a high level of demand for their condos. And since they're doing deals directly with buyers, they wind up saving the commission they'd pay to a buyer's broker.
But there's a payoff for the buyer too. You're not only circumventing the competition—which will make it easier to lock down the apartment you want, as well as extras like storage spaces, notes Javier Lattanzio, the sales manager at 50 West and a broker at Time Equities—but you could also save a bundle by buying in early.
Prices in new construction tend to start off on the lower end and then gradually ramp up as the building gets built. "The incentive is to get in before prices potentially rise. If there’s a lot of interest, prices will increase as you continue," says Stephen Kliegerman, president of Halstead Property Development Marketing.
In some cases, this can mean making a tidy profit on the apartment just for signing a contract early. "In the two years from contract signing to closing, people can flip and make money almost right away," says Feeney. "Or at the very least, their property has gone up tremendously in value. Sometimes they've already made $1 million before closing."
Another benefit? Staggered down payments, says Leonard Steinberg, president of real estate brokerage Urban Compass. Deposits can range from 10 percent to, in most cases, 20 percent or more, he says. But some buildings let you put down 10 or 15 percent at first and then add on the remainder six months down the line.
HOW IT WORKS
Sometimes referred to as a soft opening, this quiet period before sales officially start targets "friends and family": people who are connected to the builder or the marketing company, live in the neighborhood and watch the building go up, or have signed up online to learn more, experts say. "In bigger buildings there can be quite a few friends and family involved," says Steinberg.
So how do you get friendly with the developer? If you come across a development that strikes your fancy, search for the building's teaser website and sign up for more information, or have your broker make inquiries.
"The idea is really that we like to start marketing about six months out. At that point, we build an interest list with a [website] landing page. Those people get turned into the VIP list," says Todd Dumaresq of developer Toll Brothers City Living.
The "friends and family" sales period usually lasts between 30 and 45 days, and rarely more than 60 days, according to Andrew Gerringer, managing director of new business development at new development sales firm The Marketing Directors.
At this point, the development is in the so-called CPS1 stage, a window before the apartments officially go on sale when developers can disclose ballpark price ranges for the units but can't sign any deals. The New York Attorney General's office hasn't yet approved the offering plan (the gargantuan document that spells out the details of the project), but a developer can start to gauge interest from buyers.
"At the CPS1 stage we give a sales presentation, and you see the range of homes we’ll have available," says Dumaresq. "You can give us a list of your favorites and when those [go on sale], you’ll get the call."
As soon as the Attorney General gives the offering plan the green light, the sales kick into high gear: the developer will unveil a full website, open their sales office, and release floorplans and exact prices, explains Lattanzio. At this point, buyers can sign contracts.
But even if you don't choose to do a deal right away, a spot on the early VIP list can get you a special nod down the road. Lattanzio says that after the first phase of sales wraps up, he'll often reach out to people who showed interest during the CPS1 stage a second time. "Circumstances change," he says. "With the follow-up, the customer will remember the development again."
AND THE DOWNSIDES?
Buying a condo when it's still a hole in the ground (or a glimmer in a marketer's eye) involves quite a bit of risk: you don't know for sure that the project will get finished, let alone that it will match up to the vision of it you have in your head. And even though you won't take possession of the place for up to two years after signing the contract, your deposit is on the line if you back out before the sale closes.
"The downside is you’re really jumping into the water first," says Feeney, "and you really don’t know if this is going to be the hit they say it’s going to be or it’s going to sell the way they thought it would, and here you're locking in your price."
Also, many buyers in the early stages neglect to work with a broker, notes Steinberg, which may be a mistake. You don't want to count solely on the developer's marketing team to flag any potential defects or downsides with your chosen unit, and may want to enlist a trustworthy broker or diligent attorney to represent you.
"I had a client once that came very close to signing a contract on an apartment in a new development," Steinberg says. "He was so happy to be getting what he thought was a great deal. He hadn't noticed that the apartment was going to be directly above a loading dock. The developer just forgot to mention a few details."
And you can't always count on getting a mortgage like you would when a building is close to selling out. (The reason is related to Fannie Mae guidelines for new developments.) "It's a bigger risk if you’re the first person going in," Steinberg says. "The bank might not give you financing if it’s closing when so few apartments are sold." (Read up on getting financing in a new development here.)
That said, there's a risk to buying new construction at any stage of the process, notes The Marketing Directors' Gerringer. "You’re not seeing the property until it’s finished anyway. And you're probably doing a walk-through before closing. If the developers don’t finish it, you get your money back or if there are problems with the unit, you'll also get your money back," he says. Of course, that'll be minus the deposit.