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New development is a category all its own in NYC real estate and includes both ground-up new construction and pre-war conversions (essentially new construction inside of a pre-war building shell). Everyone knows there is a cachet (and price premium) to buying brand new. What are the pros and cons of buying in a new development?
Pros of New Development
1. Floor Plans Designed for Modern Living: Naturally, new developments are designed with today’s buyer in mind: en suite master bathrooms, double vanities, walk-in closets, large open plan kitchens with high-end appliances and vented hoods. New developments tend to maximize their usable square footage by eschewing layout elements often found in their pre-war counterparts, such as long hallways, closed kitchens, and over-sized foyers.
2. Quality of Finishes: To get top-dollar, developers know they have to invest in high quality, eye catching finishes. At a certain price point, that means things like solid slab marble counters, rainfall showers, high-end appliances, solid white oak flooring, and custom cabinets and tiles.
3. Amenities: Standard amenities in new developments include central heat and air, in-unit vented washer/dryers, heated floors, “smart home” features, and premium materials and appliance suites. A larger development might also have a full-scale fitness center (perhaps with a pool), a roof-deck or other shared outdoor space, doormen and concierges, cold storage for grocery deliveries, bike and private storage, resident lounges, business centers, parking, and a host of other amenities for children and pets.
4. No Unknown Renovation Costs or Headaches: Renovating is neither cheap nor easy, and a new development represents the ultimate in a move-in ready product with the home delivered pristine condition all the way down to scuffs on the walls and dings on the floor. A buyer in a new development is paying for finishes so exploring the different options in different projects is a major part of the process, unlike in resale where many buyers focus more on the potential of the space with some updating in mind.
5. That Feeling of Being the First. Most of my clients who have bought in a new development say that the main draw for them was being the first to live in their home. Many new development buyers are repeat offenders who will trade in their home for a brand new model when it’s time to move.
Cons of New Development
1. Higher Closing Costs: Developers almost always seek to shift to the buyer certain closing costs that would ordinarily be paid by the seller in a resale. These “asks” usually include state and local transfer taxes, which come out to 1.825% of the total purchase price for over $500,000, the sponsor’s attorney fees for closing, reimbursement fees, document preparation fees, etc. Even if the buyer does a good job of negotiating who pays closing costs, the buyer will almost certainly have to contribute a couple months of common charges to build up the building’s reserves at the onset -- and possibly even a substantial fee toward a superintendent’s apartment.
2. Higher Monthly Carrying Charges: New development condos, especially in new construction, tend to have substantially higher monthly costs -- both common charges and taxes -- than their resale counterparts. The higher common charges can be attributed to the cost of maintaining amenities, but the taxes are also higher because they are assessed anew, unlike in resale or conversion projects. The taxes can also be unpredictable for those who commit to purchasing in the early stages, when the taxes are mere projections in the offering plan and have not yet been assessed.
3. Unpredictable Timeline: There is always some uncertainty about when a buyer in a new development can finally close on an apartment. And even after closing, there may be further uncertainty about when the amenities and common spaces will be completed and operational. An experienced developer may be able to minimize delays, but much is outside of their control. For example, closings might not begin until a certain number of units have entered contract and the city has completed its many rounds of inspections.
4. New Construction Concerns: While most new development sales come with a guarantee of quality for major systems and the soundness of construction for a certain period of time after completion, it is almost inevitable that there will be some minor issues in the first few years. The building will “settle” (which means, at the very least, cracks in the paint) and there will almost certainly be a leak somewhere. Of course, there are horror stories about major issues -- like pervasive water infiltration -- but these are very rare, especially at certain price points. If possible (i.e. if the building is already built and the unit is ready), we always recommend having an experienced inspector thoroughly go over the property prior to signing the contract.
5. Price: Finally, the most obvious con of buying in a new development is the price premium. Prices for new development tend to run at least 15% higher than older resale inventory, and can be much, much more -- for example, in the last quarter, new development two-bedroom condos in Manhattan traded on average about 43% higher than resale ($2.65M vs. $1.85M). While some of the astronomical price tags have been negotiated (and many quite significantly) down during the slowdown, many new development units (about a quarter) have simply sat unsold as developers have not had to rush to lure buyers in the same way individual sellers have had to do. Developers are in the business of building to make a profit, and also have additional obligations to investors and lenders that limit how negotiable they can be on prices. Ultimately, it is a personal decision whether having a shiny new place is worth the price premium, especially as today’s new construction is tomorrow’s resale.