Real estate attorneys on what it would take to get them to buy a pre-construction condo
In the early 2000s, pre-construction condos in New York City sold fast. There was cachet to getting into a new development early and at a good price. But that was then. The first quarter 2019 Douglas Elliman market report for Manhattan sales tells a very different story. Although January's record $238 million condo sale skewed the average sales price of new development to a new record, closings for new development were at their lowest in 16 years of tracking the metric.
Renderings of yet-to-be-completed condo buildings and sales galleries are often very appealing, but there are risks involved in buying pre-construction. You'll want the quality and size of the finished product to match the sales pitch, and if you're getting a mortgage you need to make sure a good percentage of units are already sold.
We asked five real estate attorneys to divulge what it would take for them to invest in a pre-construction condo in 2019. They were not all on board.
Developer's rep
Craig L. Price, a real estate attorney with Belkin Burden Wenig & Goldman, says buying pre-construction wouldn't be his first choice. His advice for those who are in the market is to look at the reputation of the developer.
"If you know the developer and the quality of the developer's work you might want to get in early. There’s a small group of developers [in New York City] that people are confident in and they know what their product is. So if it was a tried-and-tested developer or if I liked the location of the building, and I believed the pricing of the unit was such that I was getting a good price, even in a bad market, I'd buy."
Price says it all comes down to the level of risk a buyer is comfortable with.
"As many of the speculative factors that you can take off the list in a pre-sale, the better; I'd want to see the building was already on its way up, that there were lots of contracts, and the sponsor was meeting thresholds."
The reputation of the sponsor would also be the most important fact for Bruce Cohen, real estate attorney, and founding partner at Cohen & Frankel.
"I would certainly buy pre-construction if it was the right building," he says. "For me, I would need to know I could get a mortgage so I'd want to negotiate a contingency or be reassured that a certain number of units were in contract and which percentage was sold."
How many units have sold
Adam Stone, partner and founder of The Stone Law Firm, admits it is always hard when a client asks whether he or she would buy a particular apartment in a particular building because of the "many, many variables." Stone says he would buy new construction but "obviously the price has to make sense—as with any apartment. Same with anticipated carrying charges. But other variables—my closing timing would have to be very flexible. I’d like to see how many [units] have been sold already in what time period."
Bruce Cholst, a real estate attorney and partner at Anderson Kill, is less than enthusiastic about pre-construction sales. The only reasons he says he could "conceive of [for buying pre-construction] are a price incentive for becoming a pioneer purchaser, or a burning desire to lock in a unit in a super hot rising neighborhood."
Cholst points out that as a "conservative purchaser [he] would personally never consider purchasing a big ticket item like a condo unit purely on spec."
Another real estate attorney we reached out to told us a similar story: "I'm not sure I would ever advise a client to buy a pre-construction condo. So I'm probably not your guy for that," he said.
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