New construction condos

  1. NEW CONSTRUCTION CONDOS/ SPONSOR SALES:
    1. PRICE: DO NOT negotiate price per square foot, Offering Plan reflects GROSS square footage not net usable square footage ( Schedule A always reflect gross square footage)
    2. Effective date : at least 15% of the units must be sold / in contract in order for the Offering Plan to be declared effective by the AG office.
    CLOSING COSTS :
    1. Transfer Tax: Burden shifts to Buyer for payment with sponsor sales and is BULKED UP. (1.825% of gross sales price, and 2.075% over $3M) meaning purchase price PLUS transfer tax . Very important of you are at the $995,000 price range because it can trigger Mansion Tax. Make sure you submit your offer with SPONSOR paying their own Transfer Tax and Sponsors Atty fee .
    2. Working Capital : also pays 2-3 months working capital (1 time non refundable payment at closing ) PLUS 1 month advance payment for condo fees. Important to review Unit Closing Costs section of the Plan.
    3. Condo Formation Fee or Sponsor Reimbursement Fee: additional fee due by Buyer at closing to reimburse the sponsor for their development and condo formation expenses ( negotiable )
    4. Resident Manger 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.
    5. Property Description report
    6. 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.
    7. Financing for New Construction :
      1. Warrantable vs Non Warrantable .
      2. Investment vs Primary residence
      3. Max percentage of Financing
      4. One entity owns more than 10% of the Units
      5. Sellers Concessions – 6% max of loan amount
    8. 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.
    9. 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.
    10. Assignments : some buyers purchase pre-construction as an investment strategy and want to assign the contract once the building is ready for a profit. This is only permitted with sponsor consent and isn’t 100% guaranteed.
    11. Warranties ; 1 year appliances , 2 years systems, 7 years structure . Keep in mind some warranties have a 50% max liability cap against sponsor for damages for construction defects .
    12. Sponsor control on the Board : at least 5 years
    13. Some restrictions : you cant sell or lease within the first year of ownership.
    14. TCO vs Permanent CO : 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. ( ie : soundproofing , converting half bath to full bath , etc. )
      • the Sponsor generally has 6 months to complete the common areas in order to have the permanent CO issued, however this time period can be extended . NOTE : any buyer who wants to complete additional renovations cannot pull permits until the permanent CO is issued.
    15. Licensed vs Deed parking spaces & storage Units
    16. 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.
    17. Tax Abatements : most tax abatements are 10, 15 or 20 years in length (ie : 421-A )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.
    18. NO BOARD APP REQUIRED with Sponsor sales
  2. PURCHASE CEMAS/ SPONSOR SPLITTERS VS 339ee Affidavit : 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 most likely the Sponsor has an underlying construction loan and therefore a Purchase CEMA or Splitter is prepared whereby the Sponsor’s lender assigns the mortgage to the Purchaser’s lender for the exact same loan amount which results in $0 mortgage tax to the Buyer. Does not have to be the same lender as the Sponsor’s construction lender but can be. NOTE : most offering plans state that in the event of a Purchase CEMA , SPONSOR shall maintain 100% of the savings . So you must negotiate otherwise in your offer.
    1. 339ee Affidavit : As incentive to create new developments in NYC , the State of NY allows sponsors to recoup a portion of the mortgage tax they paid on their underline construction loan . In this case , the amount of mortgage tax remains the same but the allocation changes, meaning a portion goes to sponsor and a portion goes to the State . The buyers amount of tax doesn’t change .
  3. 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.
  4. Creative Negotiation Tools for New Construction Deals: How to Maintain Sponsor’s Bottom Line and Still Obtain the Best Value for Your Client:
    1. 1-2 years of free maintenance
    2. Free storage bin or parking
    3. Sponsor pays their own transfer tax & atty fee
    4. Sponsor pays Buyer’s Closing Costs as well (title insurance, mortgage tax, etc)
    5. Items of Seller’s personal property included for free as leverage ( furniture , chandelier , artwork ) ** Note : this is a great tool to separate the price from the personalty as it will save the seller on transfer tax / capital gains and save the buyer on their closings costs as well ( provided they are paying cash for the items separately )
Scroll to Top

Sign Up to Get Your Invitation to our Free LIVE Masterclass!

Learn how to scale, maximize, and dominate the real estate market

Get your free Mini Course on How to

WIN THE LISTING!

Get a Sneak Peak of how to Nail your Listing presentation, showcase properties for maximum exposure and attraction, and increase your annual commission by representing more sellers.

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.

15 years as a Broker & Attorney

Mastering Real Estate: Insights from 15 Years as a Broker and Attorney in Diverse Market Landscapes.

Closing Over 10,000 Deals

Unlocking Success The Art of Closing 10,000 Deals in the Dynamic Real Estate Arena.

$1 billion in Real Estate

From Transactions to Triumphs Navigating $1 Billion in Real Estate with Expert Precision.