A "new development" refers to any newly constructed or under-construction building where the builder is offering apartments for sale on the market. This includes some significantly renovated buildings, sold by the developer who undertook the renovations, which may also be classified as new developments. Most of these properties are condominiums, though there are also co-ops, condops, single-family homes, and townhouses that may be considered new developments. New developments may also be called sponsor units or sponsor listings.
Types of New Developments:
- Completed Construction: Buildings where construction is finished, many units are already occupied, but some are still available for direct purchase from the developer.
- Under-Construction Properties: Buildings in the process of construction, with units that buyers can reserve and purchase for future completion, directly from the developer.
Department of Building (DOB) New Development/New Building Classification
The DOB classifies any building that has been significantly modified—specifically, with a 110% or greater increase in floor space—as a "new building." This impacts developers more than buyers, as buildings considered new developments must adhere to the latest building codes. However, some grandfathered buildings may not need to comply with specific code requirements due to prior codes.
Key Terms and Concepts
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Sponsor: The builder or developer who initiates and owns a new development, whether it's new construction or a renovated building. The sponsor controls the sale process and buyer selection, even in cases where a board (like in a co-op) exists.
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Offering Plan: A document from the sponsor that informs the initial buyer about the property, including details like apartment area and floor height, and notes whether square footage is measured from the interior or exterior. This legally binding document can sometimes be negotiable, and significant deviations from it may allow the buyer to challenge the sponsor.
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Punch List: A checklist created by the buyer after an initial inspection, detailing desired changes and modifications in the apartment. The buyer reviews the apartment again to ensure completion of the punch list items, though it’s not as binding as the offering plan.
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Concessions: To attract buyers, sponsors may offer incentives like covering part of the buyer’s closing costs, waiving maintenance fees temporarily, or providing dedicated parking. Concessions are preferred over price reductions, which can impact future sales.
Characteristics of New Developments in NYC
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Partially Blind Decision: Buyers may need to decide on under-construction units without visiting a completed apartment. Developers often provide models or life-size displays of rooms and may also complete model apartments to give buyers a preview.
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Price Negotiations: There’s limited room for price negotiation. Sponsors may only consider price adjustments if the property has been on the market for a long time or if several units remain unsold.
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Closing Costs and Transfer Tax: Closing costs for new developments tend to be higher than for resales. This includes the transfer tax, which the buyer is responsible for in new developments. Transfer tax is 1.825% for properties between $500,000 and $3 million and 2.075% for those over $3 million. Additional expenses may include the sponsor’s legal fees, though buyers may negotiate to have the sponsor cover the transfer tax.
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Time to Close: Closing timelines vary by property. Newly completed buildings with many sold units can close more quickly, while under-construction properties may take longer. Sponsor units in co-ops may bypass the board approval process, expediting closing.
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Financing: Mortgages for new developments can be challenging to secure, particularly if fewer than 51% of units are sold or common charges haven’t been paid for at least two years. Some developers have preferred lenders familiar with the project, making financing more accessible, even for under-construction properties.
