With 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 – but it can also be more complicated, and there are some potential trouble spots as well. You should definitely speak with your real estate attorney before you sign anything in order to make sure you’re protected.
There are three big advantages to new construction:
One, everything’s new! You get to enjoy a brand-new kitchen, brand-new bathrooms, brand-new appliances, etc. Plus, you can avoid paying for major common-area maintenance items that an older building might need, such as repainting or roof repairs.
Two, if you buy before construction is completed, you can often have the finish work done to your liking: You can choose paint colors, bathroom tile, kitchen surfaces and so on.
Three, you might get a good deal. Developers often need to “pre-sell” a certain percentage of the units in order to complete their construction financing. For that reason, they may be willing to offer very attractive prices to people who buy in early.
On the other hand, there are a lot of things you’ll have to worry about that aren’t a problem for buyers in more established communities. 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 continues. (Don’t just rely on brochures and verbal promises, which might not be legally binding.)
► At the time you put down a deposit, the condominium documents might not yet have been 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?
► If construction is delayed for any reason, will you have a place to live until the building receives a certificate of occupancy?
► 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. (Some developers try to solve this problem by having a “preferred” mortgage broker who is skilled at obtaining loans for a particular development. This might be useful, although some buyers don’t like the idea of using a broker who is working with the seller.)
► 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. You could wind up with low-quality windows or tile, or problems with floors, ventilation systems, and so on. It’s vital to hire a good home inspector even for a brand-new home.
► While it’s true that a new building shouldn’t need any major repairs for a while, it’s also true that a new association probably won’t have built up a reserve fund, so condo fees might need to be higher to account for that.
► If a significant number of units in the building remain unsold, the developer might rent them. You might wind up with a lot of short-term neighbors who don’t share your level of interest in property maintenance.
►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.
Contact the Newport RI condo attorneys at the law office of Bardorf & Bardorf to discuss your real estate matter. We are experienced Newport, RI condominium and real estate lawyers. We serve all of Newport County, including the cities and towns of Newport, Middletown, Portsmouth, Aquidneck Island, Tiverton, Little Compton, and Jamestown, Rhode Island.