10 Negotiable Terms: Buying a NYC New Development Condo

Terms you can negotiate when buying a new development condo in NYC include the purchase price, sponsor closing costs, traditional buyer closing costs, additional credits, unit alterations, freebies like a storage cage, a Purchase CEMA to lower your Mortgage Recording Tax, the mortgage contingency, the contract deposit and the outside closing date.

You can save additional money when buying a new construction condo in NYC by working with a buyer’s agent who offers a commission rebate.

Click on the sections below to learn more. Throughout this article we will use the words ‘developer’ and ‘sponsor’ interchangeably, as they mean the same thing.

Purchase Price
Sponsor Closing Costs
Traditional Buyer Closing Costs
Additional Credits
Unit Alterations
Freebies
Purchase CEMA
Mortgage Contingency
Contract Deposit
Outside Closing Date

The purchase price is the most obvious term you can negotiate when buying a new construction condo in NYC. However, developers prefer to negotiate on closing costs and other concessions as a first step before reducing the purchase price.

Developers want to keep recorded sale prices as high as possible to preserve the value of unsold units and strengthen their hand when negotiating with future buyers.

As a rule of thumb, developers are more flexible on pricing and other terms during the earlier stages of a building’s sell out. It’s not uncommon for developers to progressively raise asking prices as more units are sold.

Here’s an example of verbiage from a new development listing agent which emphasizes the fact that prices typically increase as more units go under contract:

A developer may also be particularly motivated when it comes to selling the final few units in a new development. This is because the sponsor may already be focused on newer projects and simply wants to move on.

Sponsor closing costs for new construction condos in NYC refer to NYC & NYS Transfer Taxes, sponsor attorney fees, the RMU (live-in super) apartment contribution in the case of larger buildings as well as working capital and reserve fund contributions.

NYS & NYC Transfer Taxes and seller attorney fees are ordinarily paid by the seller in the case of a traditional resale, but this convention is reversed when it comes to new construction condos in NYC.

That being said, sponsor closing costs are frequently negotiated, particularly in the case of more expensive units, buildings in the early marketing phase or for developments which are having difficulty meeting sales targets.

Keep in mind that even the most motivated developers are very resistant to covering working capital and reserve fund contributions on behalf of the buyer. This is because these funds aren’t really closing costs in the traditional sense. The funds go directly into the condo’s bank account, of which each owner has partial indirect ownership.

This is quite different from NYC & NYS Transfer Taxes and sponsor attorney fees which are paid to a 3^rd party and never recovered.

Moreover, the working capital and reserve fund contribution typically amounts to just a few months of common charges, which is a very small number relative to other closing costs and concessions which you may be negotiating.

Particularly motivated developers may also be open to covering some traditional buyer closing costs such as the Mansion Tax in addition to some or all sponsor closing costs.

Here’s an example of an offer on a new development where the purchaser asks the developer to cover the Mansion Tax in addition to all other sponsor closing costs:

You can further reduce your closing costs when buying a new construction condo in NYC by working with a buyer’s agent who offers a commission rebate.

Negotiations on a new construction condo in NYC may extend to securing credits towards taxes and/or common charges or possibly an interest rate buydown.

Particularly motivated developers may advertise an upfront discount which consists of some form of credit. The exact promotional verbiage may change over time as a sales tactic.

For example, let’s say a new development is currently offering buyers a credit towards 6 months of taxes and common charges, which equates to an upfront discount of $24,000.

A year from now, the developer may start referring to this promotion as a ‘rate buydown’ even though the effective dollar amount of the discount remains unchanged at $24,000.

Here’s an example of an offer where the purchaser asks for a credit on common charges:

Here’s an example of an upfront discount being offered by a new development, conveyed as a rate buydown:

If a new development is offering an upfront promotion, odds are that they’re willing to negotiate beyond the stated discount. In other words, consider any advertised upfront discount as a starting point for negotiations.

You may be able to negotiate certain alterations while purchasing a new development condo in NYC. Naturally, scope of what a developer may entertain is greater for more expensive units and in a scenario when the sponsor is particularly motivated.

In addition, a developer is more likely to agree to alterations if the construction team is still on-site. If the building was completed years ago and the developer still has a handful of unsold units, odds are lower that they’ll agree to alterations since the construction team has long since left the building.

Here’s an example of an offer on a new construction condo in NYC where the purchaser requests significant number of unit alterations:

It’s worth noting that this offer was for one of the building’s most expensive units. Moreover, this offer was submitted during the depths of COVID-induced market softness in early 2020.

As such, don’t expect a developer to roll out the red carpet for these types of alterations on a one-bedroom apartment in a hot new development during normal market conditions!

A NYC condo developer may be willing to negotiate freebies as part of a deal such as a complimentary (or highly discounted) storage cage, bike space, parking spot, rooftop cabana or a gym membership.

Storage cages rarely sell for list price, so they’re commonly thrown in at the final stages of negotiation in order entice a buyer to move forward.

In the example offer below, the buyer asks for a significant discount on the price of a storage cage, a discount on one parking space as well as a lease with an option to buy on a second parking spot:

If you’re financing the purchase of a new construction condo in NYC, you may be able to reduce your Mortgage Recording Tax by negotiating a Purchase CEMA with the developer as part of your offer terms. For this to work, the developer must have a sufficiently large existing mortgage on the property.

A Purchase CEMA (Purchase Consolidation Extension Modification Agreement) is the act of assigning a portion of the sponsor’s existing mortgage to the buyer.

The CEMA reduces the amount of new loan money which must be recorded, and this reduces two closing costs: the Mortgage Recording Tax (1.80% to 1.925%) and the NYS Transfer Tax (0.4% to 0.65%).

Note that a Purchase CEMA does not determine your mortgage interest rate. You do not assume the interest rate on the developer’s existing mortgage as part of a Purchase CEMA.  Your mortgage rate will still be determined by your lender.

By default, condominium offering plans typically provide for any Purchase CEMA savings to be pocketed by the sponsor and require the purchaser to consent to a Purchase CEMA.

Here’s an example of how this is phrased in an offering plan:

In short, consider negotiating for some or all of the Mortgage Recording Tax savings associated with a Purchase CEMA when circumstances allow.

Most new developments in NYC officially prohibit mortgage contingencies, but mortgage contingencies are frequently negotiated.

If a developer agrees to a mortgage contingency, they may require you to obtain a pre-approval with one of the building’s preferred lenders prior to signing the contract.

A developer may obligate you to apply with a building preferred lender as condition of allowing a mortgage contingency.

In other cases, the developer may allow you to apply initially with your lender of choice, but in the event you are not approved, you may be obligated to apply with a building preferred lender prior to being permitted to trigger the mortgage contingency and cancel the transaction.

The typical contract deposit in NYC is 10% of the purchase price, but it can sometimes be structured to increase to up to 20% over time as the project nears completion when buying a new construction home in NYC.

Fortunately, both the total amount and payment schedule of the contract deposit on a new development condo in NYC is negotiable.

Remember that contract deposit and down payment are not the same thing, as we explain here.

Your real estate attorney may be able to negotiate an outside closing date in your new construction purchase contract. The outside closing date refers to the deadline by which the sponsor must be able to close.

If sponsor is unable to close by the outside closing date, you have the right to back out and recover your contract deposit.

Keep in mind that NYC new development condo purchase contracts typically do not allow buyers to sue the developer if the sale doesn’t close. Typically, your only recourse is to recover get your contract deposit back.

Here is an example of outside closing date language in a purchase agreement for a small new development in Bushwick:

Interestingly, the developer in this example encountered financial issues which delayed completion of the building beyond the outside closing date, so the purchaser triggered this termination provision.