New Development vs. Resale Condos for Foreign Buyers in NYC
Foreign buyers considering a New York City condominium often begin by deciding whether to purchase in a new development or an existing resale building. Both can be suitable, but the buying process, costs, negotiating opportunities and practical risks differ.
The better choice depends on the purchaser’s objectives, timing, financing, intended use and willingness to evaluate construction and building history. Understanding these differences before beginning the search can prevent wasted time and unexpected expense.
How the Two Purchases Differ
In a new development, the buyer purchases directly from the sponsor under the terms of an offering plan filed with the New York Attorney General. The contract is generally sponsor-prepared, and the buyer may be purchasing before the building or apartment is complete.
In a resale, the buyer purchases from an individual owner. The apartment and building have an operating history that can be reviewed, and the transaction generally follows a more standardized negotiation, due-diligence and closing process.
Advantages of a New-Development Condo
New developments offer newly constructed residences, contemporary systems and finishes, and amenities designed for current buyer preferences. They may also provide greater flexibility for a purchaser buying from abroad because sponsors commonly sell to international buyers and are familiar with remote transactions and different ownership structures.
A buyer may have a choice among several units, exposures and price points within the same building. Depending on market conditions, the sponsor may also negotiate price, closing costs, upgrades or other concessions.
Additional Costs and Risks in a New Development
New-development buyers commonly face higher closing costs. The sponsor may require the buyer to pay expenses customarily paid by a resale seller, including transfer taxes and the sponsor’s attorney’s fee. These charges should be included when comparing the effective cost of competing properties.
A buyer purchasing before completion must also evaluate construction timing, possible changes permitted by the offering plan, projected common charges and the sponsor’s experience. A newly formed condominium has limited operating history, and initial budgets may not predict future expenses with complete accuracy.
Buyer-Representation Fees and Rebates
Sponsors of new-development condominiums generally agree to pay the fee of a buyer’s representative. Because that fee is paid by the sponsor, Eschewal New York can provide the purchaser with a substantial rebate from the commission while continuing to represent the buyer throughout the transaction. The rebate can help offset transfer taxes and other closing costs commonly shifted to a new-development purchaser.
In a resale transaction, the seller may or may not offer compensation to the buyer’s representative. If the seller does not pay that fee, the buyer and the representative must agree upon how the representation fee will be paid. In that circumstance, there may be no seller-paid commission from which to provide a rebate, and the representation fee may instead become an additional buyer expense.
Advantages of a Resale Condo
A resale allows the buyer to inspect the actual apartment, assess the building’s established condition and review its financial and operating history. Prior sales provide comparable data, and existing budgets, financial statements and board minutes can reveal patterns that are unavailable in a newly formed condominium.
Resales may also offer lower closing costs because the seller ordinarily pays its own transfer taxes and legal fees. The apartment may be available sooner, although its finishes and building systems may be older or require renovation.
Due Diligence and Financing
The due-diligence focus differs between the two transactions. In a new development, the buyer’s attorney reviews the offering plan, amendments, sponsor disclosures, construction status and projected budget. In a resale, the review generally emphasizes the condominium’s financial statements, board minutes, insurance, pending work, assessments and management history.
Financing may also differ. A lender must approve both the purchaser and the building. New developments often have relationships with preferred lenders that are already familiar with the project and prepared to make loans in the building, which can simplify project-level review. A buyer remains free to compare available lenders and loan terms. In a resale, the lender generally evaluates the established condominium based on its operating history, finances, insurance and owner-occupancy profile.
Which Is Better for a Foreign Buyer?
A new development may appeal to a buyer seeking contemporary construction, amenities, a choice of units and a transaction process accustomed to international purchasers. The availability of sponsor-paid buyer representation and a commission rebate can also materially reduce the effective cost of the purchase.
A resale may be preferable when the buyer values an established building history, lower customary closing costs, immediate availability or a particular apartment or neighborhood. The decision should be based on the total acquisition cost and the quality of the particular property, not simply whether the apartment is new.
Compare the Complete Economics
The asking price alone does not reveal which purchase is more economical. A meaningful comparison should include transfer taxes, legal fees, financing costs, anticipated work, common charges, possible assessments, sponsor concessions and any buyer rebate.
For more detail, see Closing Costs for Foreign Buyers of New York City New-Development Condos and How Foreign Buyers Should Structure Ownership of a New York City Condo.