Newbie Buying New Condo In NYC As Primary Residence, Need Help!

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Newbie Buying New Condo In NYC As Primary Residence, Need Help!

Mark K.
New York, NY · Member since 2015 · 35 posts · 6 votes

Hello,

I posted this in the general sales forum initially and I realized it's a very locally based NYC question so I am reposting here!

Anyways, I've got an accepted offer and financing lined up and now have received the offering plan (400+ pages). To give you some background, I am the first person to buy into a new 8 unit condo-building in Brooklyn. This is my first time buying and everything up to this point was fairly straight forward. I figured I just sign the purchase agreement and move in move in by April (what listing agent told me).

Of course, it's never that simple, especially in NYC. Long story short, there are two issues that are making me reconsider.

- Sponsor has yet to receive Temporary Certificate of Occupancy and in turn the Offering Plan has not been declared effective. They cannot get TCoO until 2 units are sold, I would be the first person to buy in. This means closing could potentially be months away while another buyer goes into contract. Awaiting word from sponsor on how long this will actually be but how would they know? They'd need another offer to come through on another unit right?

- 421A contingency based off final Certification of Eligibility. The building has 421A but the FINAL certification won't come through (if at all) until 90 days after the TCoO. The sponsor has received preliminary approval but not yet final which is not guaranteed. Is there a way to get a sense of whether or not the building will get the FINAL certification?  I went on NYC gov page and the property is listed as an "Exempt Property as of Final Roll FY'18/19".  That doesn't necessarily mean it's getting a FINAL certification though right?

So I'm in a position where closing is open ended and the tax abatement is uncertain. I really want this place but am not going to do anything stupid. Is all this normal for a new development? Is this more of a thing where I just need to give it time (to close)? I have done research on the developer and his other buildings and everything seems to check out. Since this is my first time, I am being particularly cautious.

I just wanted to get a second opinion from the community at large. Your help is appreciated!

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Jason Lee
Real Estate Agent · New York, NY · Member since 2015 · 401 posts · 235 votes
7y

I don't recall seeing a new dev with anticipated 421a not get the 421a. Does your attorney specialize in real estate transactions? Ask him if he's ever seen a condo not get the 421a. He should be able to give you an answer rather than cutting and pasting from the offering plan.

The closing shouldn't be open ended. There should be a deadline for the first closing in the special risks section. If they can't close by then you should be able to cancel your contract.

These are some of the inherent risks with being the first to go to contract at a new dev. Hope you received concessions for taking on that risk. Sponsors have been pretty negotiable these days when trying to get to 15%. How long have they been selling? I'd probably be more concerned with the pace of sales and why no one else is interested. There's just a lot more risk in a condo with so few units.

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  • William Glass
    Investor · New York City Fort Myers FL, Birmingham AL · Member since 2016 · 105 posts · 52 votes
    7y

    Hi Mark, I just moved up to NYC (Queens) back in October of last year so unfortunately not much help. In this situation, it may be worth getting some advice from a real estate attorney. This may be pretty normal for new developments in Brooklyn, but a few hundred bucks to have an attorney on your side seems like it may be worth it. 

    Search for Eury Vargas on BP. He messaged me yesterday and his company works with new construction in Brooklyn so he may be a resource for some general sense. 

    I've walked away from signed contracts before when a seller and agent were wanting to change things on the purchase agreement without putting it in writing. The risk wasn't worth it. I'd get a real estate attorney to help you sort through it.

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  • Mark K.
    OP
    New York, NY · Member since 2015 · 35 posts · 6 votes
    7y

    Thank you William!

    I do have a real estate attorney but he seems to only give me legal jargon type answers.  It doesn't seem like he is willing to provide me any anecdotal evidence or his personal opinion.  

    For example, regarding 421A he basically says "final approval will be given 90 days after the issuance of the TCO IF the NYC department of finance decides to give final approval. The sponsor cannot guarantee a result from the NYC department of finance. The sponsor received preliminary 421-a abatement approval from NYC department of finance. This mitigates the risk slightly that NYC department of finance will deny the final approval, but it does not eliminate the risk completely."

    That's a very stock answer.  I am trying to do my own due diligence and gather feedback from others that may have experience with this.

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  • Jason Lee
    Real Estate Agent · New York, NY · Member since 2015 · 401 posts · 235 votes
    7y

    I don't recall seeing a new dev with anticipated 421a not get the 421a. Does your attorney specialize in real estate transactions? Ask him if he's ever seen a condo not get the 421a. He should be able to give you an answer rather than cutting and pasting from the offering plan.

    The closing shouldn't be open ended. There should be a deadline for the first closing in the special risks section. If they can't close by then you should be able to cancel your contract.

    These are some of the inherent risks with being the first to go to contract at a new dev. Hope you received concessions for taking on that risk. Sponsors have been pretty negotiable these days when trying to get to 15%. How long have they been selling? I'd probably be more concerned with the pace of sales and why no one else is interested. There's just a lot more risk in a condo with so few units.

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  • Hanna Edwards
    Vendor · New York, NY · Member since 2016 · 15 posts · 7 votes
    7y

    Jason is correct: the 421A is likely to go through if the preliminary approval is there.  Something drastic would have to happen for it not to receive the 421 final approval. 

    If the only thing needed for TCO is for 2 units to sell, it sounds like that vould happen pretty quickly. People often don't want to be the first, but they will happily be the second if it means the TCO  comes through as a result. Again Jason is correct that you might negotiate a concession (credit for common charges, as an example).

    If you really like this unit, I think being the first is a good thing, as long as you have the right to cancel the contract, because sponsors usually sell the lowest priced units first.  But be aware that you might have to wait 12 months or more before you can cancel it. 

    So if you are the first taker after its been marketed for a few months, then closing may be a long way off. But if it's just debuted in the past couple weeks, it may not take too long to get to 25% and then 50% sold.

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  • Mark K.
    OP
    New York, NY · Member since 2015 · 35 posts · 6 votes
    7y

    Jason and Hannah, thank you so much for your input and insight.  It is very helpful. 

    As far TCO, I am not that concerned, the building has only been up on StreetEasy for a few weeks.  I went there again today and they were cleaning all the condos in preparation for an open house tomorrow and they had a sign on my unit that said "In Contract".  So going today eased my fears a bit.

    My main concern right now is the 421A.  I am not quite sure how that works once the sponsor receives TCO.  Can someone walk me through the process?  Say 2 units are sold, does closing take place shortly thereafter?  If so, then I would be paying property tax each month until the final 421A approval comes through right?  I am just trying to wrap my head around the logistics of it all.  

    I am already having the sponsor pay all transfer taxes and their attorney fees.  Can I ask for more concessions?  Say like $10K closing credit or is that pushing it?  Since I am the first buyer, I should have some leverage right? 

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  • Hanna Edwards
    Vendor · New York, NY · Member since 2016 · 15 posts · 7 votes
    7y

    If you haven't signed the contract yet then you can ask for additional concessions but there is no hard rule what to ask for.  I have seen sponsors give credits for decorating, common charges, etc. Just getting them to pay their transfer taxes is a pretty serious concession. 

    As for the 421A, I don't know for certain the answer to your question (most buildings have received their 421A before closings start but if you plan to close immediately upon receipt of TCO and don't need a mortgage then it's possible you could actually take possession before the 421A paperwork is finalized) but your attorney or the sponsor's reps should be able to give you an answer as to who pays and how much.

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  • Brandon CohenPro Member
    Real Estate Agent · New York, NY · Member since 2014 · 160 posts · 45 votes
    7y

    @Mark K. you can certainly ask for what you’d like especially if you haven’t signed the contract yet.  Market is slow in general but if it’s only a few weeks on the market I wouldn’t worry too much.  If you see the developer has a good track record that should help ease concern.  In this market in new development, I’ve been able to negotiate lots of concessions (sponsor paying closing costs, credits, customizations) but developers are being stubborn about going off of Schedule A pricing.  Good luck!

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