Many condo buyers have fewer assets and a brighter future than you'd expect . . .
Leks, what you are missing is the financial profile of most of my clients.
I am a typical co-op buyer -- forty years old (sigh!), relatively low household income (two non-finance jobs), relatively high household assets (rolled up from years of investing in NYC real estate).
You say you've been working for awhile, so you are probably a decent co-op candidate too.
My typical client, on the other hand, is around 30 or even younger, fairly fresh out of college/grad school, and has not had much time to accumulate assets. In fact, he or she is possibly shouldering six figures worth of education debt.
On the other hand, these young go-getters can make spectacular salaries in tech fields, in entertainment, or on Wall Street.
With prices running roughly $1 million per bedroom, my clients don't have the option of buying without a mortgage. They don't (generally) have millions in the bank.
In fact, some of them can't go 20% down to buy a co-op. If they want to buy, a condo with a huge mortgage is their only option.
Yes, they are taking on interest rate risk and deposit risk, but their earning power is so great (and in some cases, their earning curves are so steep) that the significance of that risk wanes over time.
If you commit to a $1.9 million mortgage, and you think in two years rates might turn against you by 2 percentage points (i.e., 200 bips -- let's say from 6.5% to 8.5%) but you think you're going to be earning $150K more per year in two years than you earn now -- at minimium -- it's a very sensible risk to take.
ali r.
{downtown broker}
pre-approval
Before signing any kind of new development contract, I would spend the time and effort to get yourself pre-approved for a mortgage. From that process you will know how comfortable you will be that your financial situation is good enough to get a mortgage when its time to close.
Thanks for the responses. The points are well taken.
I do have a pre-approval, and for more than the anticipated mortgage on the new construction. However, when dealing with a significant deposit (10-15%) for most new construction, it would still seem iffy (to me) to proceed to sign a contract without a mortgage contingecy for something that is 12-18 months away from closing. A lot can happen in the time frame. If it is a short time to closing, then the risk is obviously significantly reduced. I think it boils down to how risk-averse one is. If I was a cash-only buyer, then there wouldn't be an issue with putting the deposit down on the new development.
Why leks you big handsome lug (or lugette -- one never knows with e-forum gender) --
Buying a condo with a long lead time and no mortgage contingency IS iffy. Let me sell you a co-op.
ali r.
{downtown broker}
p.s.: I am currently reading an advance copy of a new book by Dan McGinn (Newsweek real estate writer). It's called House Lust, and it's fabulous. He lays in out in scholarly detail the impulse that Americans have to buy "new" homes, and explains why the market for older homes and the market for new homes don't cross over. (Among other things, he is so persuaded by the argument that modern layouts are better that he starts planning to add a mud room to his 1970s house).
So in other words, a co-op might make more sense for you; it would entail less financial risk; be better built, ready when you want it to be ready, and cheaper per square foot; but if you're the kind of buyer that's drawn to new construction, you'll probably end up buying new construction.
The McGinn book, btw, is coming in December from Doubleday/Currency.
Last edited by Front_Porch; September 6th, 2007 at 06:40 PM.
Tribeca Space
Tribeca Space Update - The developer has been forced by the New York Attorney General to offer everybody who signed a purchase contract the right to rescind their purchase contracts. Word has it that at least 25% of the people who purchased in the building have already rescinded and that most of the building will end up being rented out instead of sold. Closings were supposed to start a year ago and there's still no end in sight due to inability to get temporary certificate of occupancy - supposedly due to problems with the building's sprinkler system and elevator system and illegal use of another building's air rights. Meanwhile, the two Corcoran agents in charge of marketing the building (Jim Brawders and David Kest) have fled to another project (45 John) and want nothing to do with the poor people they sold condos to at Tribeca Space. What a mess...
Don't agents have some on-going responsibility to buyers? And a requirement to have done their necessary "Due Diligence" when marketing a project?
"Stealing" of air rights (over-building on a site) is something that could have been tracked and exposed well before this project got too far along -- if people had been doing their jobs correctly.
I don't know these particular Tribeca agents, or their business deals, but presumably they don't get paid until closing.
That's an agent's strongest incentive to take care of their customers: no deal, no $$$.
That said, what an incredible cautionary tale of many of the different things that can go wrong with buying into a new development!
It releases the old buyers, but it doesn't give them their time back . . .
ali r.
{downtown broker}
Amendment and Price questions
Hi- would anyone be so kind to answer/ respond to my questions of last week?
thanks!
Sorry BPC butterfly, I felt like a lot of these were legal questions so I was waiting for a lawyer to jump in --
anybody?
ali r.
{downtown broker}
Actually, I'm mostly interested in how/ when the sponsor decides to increase prices, including on those that are already in contract... this seems to be a normal occurance in new developments.
??? A price increase on a unit that is already in contract? That does not make any sense to me. If you have signed a contract, by definition you have agreed to a set of terms including a price.Originally Posted by bpcbutterfly
I am no lawyer but I have found that as soon as they sell the units that they have released for sale, they put in an amendment on the prices so they can raised the prices on the remaining units before they release those for sale. I would assume that there is some market judgement so if they see that a particular line is hot, those are more likely to get a price increase.
breaking a contract on new construction condo
Hi -- I'm new here. My husband and I put down a deposit for a new construction condo apt in NYC and are having 2nd thoughts. How difficult is it to get out of the contract and get our deposit back?
Very - has anything happened that would be a breach of the contract? Do you have an outside date for closing?
contract
i'll ask my broker and lawyer what they think too. the project looks like it will be late but i don't think there's a firm date specified in the contract. what if in the walk through the apt is not what was expected (extra columns or smaller sqft)?
thanks for responding.
key here is what is said in the contract. i would bet the contract gives the developer a bit of leeway for construction needs (if column is needed for some reason), Square footage is all in the details...the important thing is interior vs exterior square footage. Definitely check with your attorneys but it can be tough - then again if it is a really hot condo and the developer thinks they can sell for higher price (maybe they have amended their prices) they may let you out of contract.
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