By Sandor Krauss
As a New York City real estate attorney, I’ve negotiated my fair share of closings. Before closing your transaction, you’ll need to consult an attorney. But, if you’re new to the game or just slightly rusty on the logistics of the transaction – there are many and they’re complicated – take a look at my list of five concerns you should be aware of before purchasing a new development condo
1. The Offering Plan
Basically, the offering plan is a long complicated disclosure document that a sponsor is required to file with the Office of the Attorney general and to provide to any prospective purchaser. While every page of this cumbersome document may not need to be read, a large part of it is essential to the deal. At a minimum, the attorney for the purchaser should concentrate on Special Risks Section.
2. Closing Costs
There is a section within the Plan called “Closing Costs and Adjustments”. Each plan is different. Here are some examples of costs that can sneak into a plan.
- Tax Abatement Reimbursement Fees
- Offering Plan Preparation Reimbursement Fees
- Legal Fees (plus financing fee, travel fee, etc.
- Insurance Fee for first year.
- A fee for each and every Release.
3. Punch List
The sponsor is contractually obligated to complete the punch list provided prior to closing. However, once the sponsor has its money and you have closed, it becomes increasingly more difficult to chase down contractors and supers to get this work done. If a buyer can, it is always best to hold off from closing until most of the punch list is resolved.
4. Tax Abatement
There is a schedule within the Plan that will set forth the prospective taxes for each unit with or without the tax abatements. There are a few important things to understand about tax abatements in new developments.
- There is no guarantee that the tax abatement will be approved.
- Your lender will likely take escrows (if they are escrowing for taxes) based on the unabated amount. So not only will you have an escrow account with the lender with reserves (3-6 months) based on the higher amount, but you will have to pay taxes on the unabated amount every month until the escrow account is modified after the abatement is in effect.
- The title company may take an entire quarter of unabated taxes from you at the closing.
5. Closing Date
This is one of the most difficult and elusive concepts to deal with when going to contract. The Contract typically provides for just a 30 day notice to the Purchaser once the Sponsor is ready to close. The Sponsor must declare the plan effective and provide at least a temporary certificate of occupancy in order for you to close. The regulations require that the Sponsor must close the first unit within one year from the start date of the project budget in the plan. Of course, this will not help you, as after that, the Sponsor has no requirement to close any other units at any specific time period. Try to negotiate an outside Closing Date. This way, you will know for sure, the latest date you will close by.
For more on these topics, check out StreetEasy’s Talk section. Head here for an open forum discussion on offering plans. Or here to find out what New Yorkers are saying about new developments and sponsors around town.