Condo resales vs new development

  1. CONDO RESALES:
    1. Pre- Contract Inspections?– optional for buyers, unit owner is responsible for all appliances and internal contents, Condo Assoc/Mgmt is responsible for all systems (electrical, heating/cooling, plumbing) – NOTE: New construction comes with standard 10 year builders warranty (1 year appliances / 2 year systems / 7 years structure)
    2. Financials- main thing is to verify Condo has a sufficient reserve fund and operating at a positive cash flow (expenses are less then income) (**attorneys review same during due diligence )
    3. Financing Amount: Buyers can finance up to 95% of the purchase price with condos, gives them much more flexibility.
    4. CONDO PROJECT APPROVAL: this is very important as the lender needs to have the condo building approved in order to lend in the building. Before client commences their financing process, they should confirm with their lender that this condo project is on their approved list.
    5. Offering Plans : Bylaws , Property Description Reports, Schedule A , Floor Plans, Budgets- these docs are generally required for lender approval along with questionnaire.
    6. Mortgage Contingency: every offer should include the standard 30 day mortgage contingency to protect the buyer’s 10% deposit in the event they are denied financing. In a competitive market if seller pushes back on the contingency, you can negotiate it down to 15 days so buyer is still protected.
    7. BOARD APPS: much smaller than coops but can still be extensive. Board approval is needed in order for WAIVER of First Refusal to be issued in order to close.
      1. NOTE: Can take up to 30 days for approval but should be submitted within 3 business days from Loan Commitment Date.
  2. Saving Clients Money: Creative Tools
    1. Seller Concessions: if you client is tight on funds and wants to maintain their liquid cash post-closing, then we can negotiate a seller’s concession whereby the closing costs can be financed into the loan (ie: $20,000) so that the Buyer brings less money to the closing table and gets a credit of $20k towards their closing costs.
    2. PURCHASE CEMA’s: This is a great tool to save your clients money on the mortgage tax. The mortgage tax is 1.8% of the loan amount if under $500k, and 1.925% of the loan amount if over $500k. However if the Seller has a current mortgage, then we arrange for a Purchase CEMA whereby the Seller’s lender assigns the mortgage to the Purchaser’s lender. Then the mortgage tax is reduce based on the difference between the Seller’s principle mortgage balance and the Purchaser’s loan amount. This is called the “new money” and is taxed at the above percentages thus significantly saving the Buyer in the mortgage tax.
      1. FEES: the Purchaser CEMA fees range around $1500-$2000 for the processing and recording and legal fees.
      2. INTERNAL CEMA vs OUTSIDE CEMA : if the Buyer applies for a mortgage with the Seller’s current lender, it’s a lot faster and seamless. However if the Buyer wants to stay with their bank, is called an Outside CEMA and may take a little more time and increase the fees.
      3. COLLATERAL DOCS (original Note & Mortgage) – the sellers current lender must locate the original Note & Mortgage in order to assign it to the new lender. If they lost the originals, then the CEMA cannot be completed.
      4. Splitting Savings : some Seller’s get greedy and request that the Buyer split any mortgage tax savings with them 50/50 in exchange for their cooperation.
  3. NEW CONSTRUCTION:
    1. PRICE: DO NOT negotiate price per square foot, Offering Plan reflects GROSS square footage not net usable square footage
    2. Transfer Tax: Make sure you submit your offer with SPONSOR paying their own Transfer Tax and Sponsors Atty fee as burden shifts to Buyer for payment with sponsor sales and is BULKED UP. (1.825% of gross sales price) meaning purchase price PLUS transfer tax
    3. Working Capital : also pays 2-3 months working capital (1 time non refundable payment at closing ) PLUS 1 month advance payment for condo fees
    4. Mortgage Contingency: Sponsor will issue only if Buyer utilizes the sponsors preferred lender. However, BUYER MAY apply to their own lender as well but they can only cancel and get full deposit back if SPONSORS LENDER denies them, not their own lender of choice.
    5. Resident Manager Unit : one time non refundable payment due at Closing, applies to SOME new condos NOT ALL. It appears on schedule A far right column and covers a portion of the purchase price for the Resident Manager Unit based on % of common intersect.
    6. Punchlists : make sure you schedule 2 walk throughs, one 2 weeks before closing once TCO and scheduling notice goes out and one 48 hours before closing to update the Punchlist. Sponsor has 30-60 days to address all items. NO credits or escrows are held for sponsor sales.
    7. Closing Date & Drop Dead Dates: new construction is subject to delays based on labor, materials, DOB sign offs etc. As such I always add a 90 day cushion to the date sales office projects. OP allows right of rescission after 1 year. However some clients rather negotiate a drop dead date, which means in the event the TCO is not issued by a certain date (say 6 months out) then Buyer may cancel with return of full deposit.
    8. TCO vs CO: TCO must be issued in order for closings to commence. Then permanent CO issued within 6 months (unless Sponsor requests extension of same from DOB) NOTE: unit owner may NOT do any renovations or pull permits from DOB until PERMANENT CO is issued.
    9. Tax Abatements : most tax abatements are 10, 15 or 20 years in length (ie : 421-A and J-51)- important to note when the abatement expires as the taxes will be reassessed based on market value and thus may increase significantly for your client.
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Taliya Bashani ESQ

Are you tired of spending so much time and energy running around with buyers showing them properties only for them to jump ship or not pull the trigger ? Are you getting into contract only to lose deals and have them fall through midway? I have helped thousands of agents just like you refocus their energy on sellers and win more exclusive listings. They are doubling their commission with a lot less time and stress. I have spent the last 15 years as a broker and real estate attorney closing over 10,000 deals and over $1 billion in real estate.

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