Be careful buying a condo that’s new construction

Be-careful-if-youre-buyingWith the real estate market still in the doldrums, a lot of people are thinking that this is a good opportunity to buy a brand new condominium, rather than one in an older community.

New construction has a lot of advantages: Everything’s new, and you might get to choose your own paint colors, bathroom tile, kitchen surfaces and so on. Plus, developers often need to “pre-sell” a number of units to complete their financing, so they may be willing to offer very attractive prices to people who buy in early.

On the other hand, new construction can be more complicated, and there are some potential pitfalls. You should definitely speak with an attorney before you sign anything in order to make sure you’re protected.

 

 

Here are some things to consider:

 

  • The developer’s offering plan will contain the specifications for the unit, including exact size, the standard appliances or appliance allowance, what finishes to expect, and so on. This document can be dense and difficult. You’ll want to make sure you understand exactly what you’re supposed to be getting, and make sure the developer fulfills his or her obligations as the construction progresses. (Don’t just rely on brochures and verbal promises, which might not be legally binding.)
  • At the time you put down a deposit, the condo documents might not yet be finalized. You’ll want to look these over carefully as soon as they’re official, to make sure you agree with the rules for the association. Are you happy with the condo fees, any restrictions on pets, and other issues?

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  • Getting a mortgage for new construction can be difficult. For instance, Fannie Mae won’t back a mortgage unless a certain percentage of the units in the building are already under contract. That means that if you’re one of the earlier buyers, you might have trouble getting a loan. Even if you’re a later purchaser, Fannie might be reluctant to okay the building if a significant number of the units will be owned by landlords or investors, as opposed to people who actually live there.
  • Another mortgage problem is getting a good appraisal. Appraisals are based on “comparable sales,” and with a new building, it might be hard to find comparable sales. An appraiser might have to rely on sales of units in older buildings, and this could result in an appraisal that comes in below your purchase price.
  • Don’t assume that new construction always means high-quality construction. Developers have been known to cut corners, especially with last-minute details and especially if they’re having trouble selling units and need to reduce their costs. It’s vital to hire a good home inspector even for a brand-new home.
  • Buyers of new construction sometimes qualify for property tax abatements. You’ll want to make sure you understand what tax savings you’re entitled to, and how to obtain them.
  • Closing costs can be higher for new construction, so be prepared.

Many people who buy a new-construction condo end up with a beautiful home at a reasonable price. Just be sure to consult with a knowledgeable advisor first…so you can increase your chances of being one of them.