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Purchasing an apartment in a new development can be quite different from purchasing a resale apartment. And it’s not just about the higher price and more amenities; the purchasing process itself can be different when you are buying from a sponsor (building’s developer) instead of a previous apartment owner. The process will vary based on the buyer and development, but there are common steps in almost every transaction.

Understand The New Development Difference

The price per square foot for new developments might be significantly higher than a comparable older apartment building. The closing costs are also usually much higher because, in a resale apartment, the seller takes care of the transfer tax, but when you are buying a new development, it's your responsibility. It can be 1.825% or 2.075% (for apartments costing $3 million or more) of the purchase price. The time to close is also different and is based on how close the apartment building is to completion.

Find The Right Project

If you have a clear understanding of what you need in your new apartment, you will have an easier time finding the right new development to purchase. For example, you may not want to pay a higher price just to have access to amenities you don’t need. The stage of development is also important. If you are buying a development in the early stages, you may get a better price and incentives from the sponsor. But you will also have to wait quite long before you can move in. Research developer’s history and past projects as well. Also, sometimes buying too early in the project leads to overpaying if the development struggles to   sell out.

Checkout The Model Apartment

Researching a developer's past projects gives you ideas about how your building might turn out, and a model apartment tells you what your apartment will look and feel like. You will also learn about the layout, square footage, quality of material used, appliances, etc., and can make a more informed decision. However, it won't tell you about the view from your apartments, and you might need drone photographs or a hard hat tour for that.

Find Out About The Concessions

Many sponsors and developers offer concessions to get more people interested in the project. Some of these concessions are stated in the listings, but you may negotiate for others. These might include no common charges for a few months (or reduced charges for a year or longer), free gym membership, free parking spot, etc. In some cases, the sponsor might cover some of your closing costs. Discounts in the price of the apartment are rare since they can set a bad precedent for other buyers. Note that the concessions might have specific requirements like closing before a certain date or paying at a certain price.

Choose A Lender

Financing an apartment in a new development might be challenging, especially when the building is in its early stages. These projects need to meet certain requirements before lenders start making mortgages on their apartments. However, there is usually a preferred lender that has an understanding of the project who has an existing relationship with the lender. However, these lenders may lean more toward the sponsor than you, the borrower.

Get An Attorney and Go Through The Offering Plan

In New York City, you must have an attorney if purchasing an apartment. When it comes to new development, make sure you hire someone who has experience because you could put yourself in a terrible financial situation if you don't have a lawyer who is familiar with the process as it's different from a typical resale. Your attorney will go through the offering plan, which is a very lengthy document (often hundreds of pages) that discusses the ins and outs of the building, to understand the specifics of the final product you will get. It also includes information on certain restrictions like pets and subletting.

Make An Offer, Get Into Contract and Pay Attention To Closing Date

Once you are satisfied with the project, its offering plan, the price, and other aspects of the deal, you can make an offer to the sponsor. Make sure you are prepared for the higher closing costs. Also there is an outside date on which the building is supposed to be completed. If it's not, you may be able to back out from the purchase with your deposit or negotiate for concessions/incentives from the sponsor.

Have Walkthroughs and Move To Close

Once the apartment is in contract, you will have two “walk-throughs.” In the first one, you will develop a punch list of all the improvements and repairs you want in the completed apartment. The sponsor is not legally obligated to follow all your requirements, but they usually comply with the most reasonable requests to ensure that the sale goes through. The second walkthrough is similar to a regular resale where you visit the apartment around a day before the closing to make sure everything is in working order. Note that the sponsor may take care of some of the punch list items after closing, but it's preferable to get everything done in advance. Outside of the timing and waiting for the project to be completed, the approval process and the closing is very simple as there is no board approval and the information you have to provide is minimal compared with typical condos and co-ops.

Will you be paying all cash or will you be financing or borrowing money from a financial institution? The last thing you want is to find the perfect place and realize you aren’t qualified enough. A worse situation is when you are qualified, but don’t have everything you need in place and lose the apartment to someone who is 100 percent prepared.

If you are not paying all cash for the purchase of your new home, make sure to first speak with a mortgage broker, mortgage banker, or lender to get a pre-approval letter. This very simple and quick process gives you an idea as to how much you can realistically finance. If you are not a US Citizen, however, this process might be a bit difficult, and there may be other avenues you may have to explore.

If you need to get in touch with a mortgage broker, banker or lender, feel free to contact me and I can give you a few options.

The next part of getting qualified is having a real estate attorney. Imagine — You’re walking around one day and randomly stop into an open house and fall in love with the apartment. You put an offer in immediately and it gets approved. Unfortunately, if you don’t have a real estate attorney, or if you don’t find one immediately, the seller might go with another buyer because they are unable to send contracts out to what should be the buyer’s attorney. Always be prepared and have a real estate attorney at hand.

If you need to get in touch with a real estate attorney, feel free to contact me and I can also provide you with some options.

Even before you figure out where you want to live, you need to determine whether ideally you would like to live in a condo or a co-op . What are the main differences? I’ll give you a brief overview here, but you can also check out my “Co-ops vs Condos In NYC” video for a more in-depth description. When buying a condo (or a condominium), you are buying an individual piece of real property. You own the apartment in addition to undivided interest in the common area. You are responsible for paying both real estate taxes and common charges. Also there is no underlying mortgage. When purchasing a co-op (or a cooperative), you are buying shares in a corporation versus owning real property. You pay maintenance, instead of common charges and real estate taxes, which is partially tax deductible. About 75 percent of apartments for sale in NYC are in co-ops whereas about only 25 percent are in condos. Aside from this percentage, there are many factors that may come into play when deciding between a co-op or a condo. Here are a few:
  • First is understanding your timing – When do you need to close by?
  • Second – How much money are you able to put down?
  • Third – Do you plan on using the apartment as a pied-a-terres
  • Fourth – Do you plan on subletting your apartment in the near future?
  • Fifth – How much are you willing and able to spend?
  • Sixth – Are you buying the apartment for yourself or for someone else? (The difficulty of getting approved)
Generally speaking — and please understand that each building has its own market and its own rules — a condo takes about 1-2 months to close from the day contracts are signed, you usually have to put 10 percent down, pied-a-terres are allowed, sublet policies are pretty lenient — generally offering 12-month leases at a time — it can be 30-40 percent more expensive than a co-op if everything else is the same, and the approval process is much easier since there is no board interview and co-purchasing and guarantors are allowed. In general with co-ops, it can take from 2-4 months to close from the day contracts are signed, you have to put a minimum of 20 percent down and sometimes up to 50 percent or higher, many co-ops do not allow pied-a-terres, sublet policies can range from being very strict to not allowing sublets at all, it can be 30-40 percent less expensive than a condo if everything else is the same, and the approval process can be significantly more complex and difficult, some of the reasons being because you have to supply much more financial and background information, co-purchasers and guarantors are often not allowed and you have to go through a board interview.

Find a real estate broker. While you can decide to look on your own, there are many advantages you gain by working with a broker. Can you theoretically find an apartment on your own? Of course! But just a few qualities a great broker will have include understanding the market, being able to negotiate the price and terms of the apartment, having access to properties not currently on the market and helping you through the process, which is very underrated. Working with a buyer’s broker is at no cost in almost all cases, so if you’re going to be making one of the biggest investments of your life, why not use someone who is a real estate expert?

What type of apartment are you looking for? – The truth of the matter is that in the beginning of your search, you may want a 2 bed, 2 bath apartment in a new high-rise building with tons of amenities in Midtown West and may end up living in a 3 bed 3 bath walk-up on the Upper East Side. However, it’s important to have an idea as to what you absolutely need versus what you want. Let’s go over the checklist together excluding what we went over in the co-op vs condo section.

  • How big of an apartment do you need in terms of square footage and bedrooms / bathrooms?
  • Do you have pets?
  • Are you trying to find a sponsor unit? (What is a sponsor unit)
  • Do you need a pool, gym or basketball court?
  • Do you need a washer/dryer in the apartment or at least in the building?
  • Do you need an elevator?
  • Do you need a doorman?
  • Are you looking for a particular view or exposure?
  • How important is the proximity of public transportation?
  • Do you need a garage attached to the building?
  • Do you need specific finishes?

From Making An Offer To Getting Contracts Signed – This is the most exciting, but potentially nerve racking time of the entire process. Prior to making an offer, make sure you have your REBNY financial form filled out and delivered to your buyer’s broker (if you are using one) or to the listing broker if you are not being represented. This shows the selling broker that you are potentially qualified enough for the apartment.

When you make an offer through another broker, the broker is legally bound to submit that offer to the owner. If the offer is low, the owner may counter the offer. However, if the offer is too low, the owner might not respond at all because they are offended by the lowball offer. If there are several offers close to or at the asking price, a bidding war may ensue, driving up the price of the apartment.

After the owner accepts the offer from the buyer, contracts will go out to the real estate attorneys representing the buyer and the seller. Once the language is agreed on by both parties, — which includes closing date, contingencies, price and other terms — the buyer puts an earnest deposit down, contracts are signed and the deal moves onto the next step…

Building and Management Approval Process

Depending on how strict the building management is and whether you are applying for a condo or a co-op, this can be the most time consuming part of buying an apartment. Your broker should send you the application and board requirements. While it varies from management to management, you will most likely need to include tax returns, a financial statement with supporting documentation, bank statements, and letters of recommendation along with other information that should be provided on the application form. Condos and sponsor units won’t require interviews, but co-ops will. If you get to the interview part of the co-op process, this is a great sign! After submitting the application and/ or having the board interview, hopefully you will get notification that you have been approved! Now it’s time for the best part…

The Closing –

The day is finally here! All that hard work has paid off! The day of the closing is pretty straightforward. You will have a walkthrough of the apartment to make sure that everything is in working order. Then the attorneys, seller, buyer, title rep, buyer’s and seller’s brokers will all meet in a room, drink ice water and tea, and talk about their lives to help pass the time until funds have transferred and everything is signed. Once that is completed the buyer will receive the key and is ready to move in.

If you got to this point, congratulations! You have just purchased your new home! This is a very exciting time in your life!

This is just an overview, but if you have additional questions about the buying process or you are looking to find someone to represent you in buying an apartment, please contact me at [email protected].

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