Key disadvantages of buying a new construction condo in NYC include higher closing costs, year two increases in property taxes, post-closing restrictions on renting or selling and the possibility that building amenities and common areas may not be completed by the time you close.
These key disadvantages represent the tip of the iceberg in terms of the special risks associated with buying a new construction condo in NYC.
Click on the sections below to learn more.
Cons of Buying a New Construction Condo in NYC:
Buyer Closing Costs Are Higher for New Construction Condos in NYC
Buyer closing costs for new development condos in NYC are up to 6% compared to 3% to 4% for traditional resale apartments.
Additional buyer closing costs which are only applicable to new developments include NYC Transfer Tax (1% to 1.425%), NYS Transfer Tax (0.4% to 0.65%), sponsor attorney and document fees, building working capital contribution as well as a super apartment (residential manager unit) contribution in the case of larger buildings.
Keep in mind that these additional ‘sponsor’ closing costs are often negotiable. Whether or not a developer is willing to cover some or all sponsor closing costs depends on how motivated the developer is.
If a building is meeting its sales targets with ease, odds are quite low that the developer will negotiate sponsor closing costs.
Conversely, a developer is highly likely to negotiate closing costs if a new development finishes construction and has loads of unsold units.
A particularly motivated developer may even be willing to cover some non-sponsor closing costs, such as the Mansion Tax, and possibly throw in other freebies such as a storage cage.
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The first year real estate tax figure is actually an average of the taxes on the in construction and finished values. Since the taxable value of a finished building is higher than a partially constructed building (or vacant land), your real estate taxes will eventually be higher than what’s listed in the offering plan.
Here is an example of actual language in an new development Offering Plan which speaks to the fact that property taxes will likely increase in year two:
If you’re purchasing a sponsor apartment from a completed new development that’s been around for years, the possibility of property taxes rising in the second year isn’t a concern because the assessed value for tax purposes has already been adjusted to account for the building’s completion.
It’s quite common in the case of very large new developments for a number of units to be unsold at the time closings commence. As such, don’t be surprised if you see a new development condo being advertised in a building which was completed in 2019!
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Restrictions on Renting or Selling
Many new development condos in NYC prohibit purchasers from selling or renting within the first year of ownership. These restrictions are designed to prevent the sponsor from having to compete with unit owners in the event that a substantial amount of units remain unsold by the time closings commence.
New developments also usually prohibit contracted purchasers from listing a property for sale or rent prior to closing. Here is an example of such language in the Offering Plan for a new development condo in Lower Manhattan:
Building Amenities May Not Be Completed by Closing
A key disadvantage of buying a new construction condo in NYC is that the building amenities may not be completed by the time you close. Sponsors have one year from the first closing to finish the building’s amenities, but on a practical level there’s not much you can do if the developer doesn’t meet this deadline.
Even if all amenities are completed by the time you close, you may still be inconvenienced by ongoing construction in other units and throughout the building. Here is an example of language in the Offering Plan which speaks to this risk:
