Home Buying in Bayswater>Question Details

Db, Home Buyer in New York, NY

What are the extra costs involved in purchasing new construction?

Asked by Db, New York, NY Mon Jul 21, 2008

Hi - couple of questions about buying new construction. 1. I've heard that buying a brand new house may run me upwards of $30k in closing costs, whereas with non-new construction it'll probably be closer to $20k. I've also heard that for some reason the buyer pays some of the builder's costs, which is part of the higher cost. Is this true? Whats the story behind this? 2. I've been told to beware a new house 'settling' over the first few years, sometimes with house-altering results. Is this something I shoul dbe afraid of? Is there anything I can do to protect me from this, whether through maintenance or contractually with the builder? 3. This would probably only be for the neighborhood referenced (11691 zip) - I've heard theres a tax abatement program on new homes. Can anyone confirm or deny, and let me know how it works? 4. Is there anything else to be aware/wary of when purchasing new construction that you can advise about? Many thanks in advance for any and all answers!

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Daniel Gershburg, Esq.’s answer
A few things from an attorney who deals with new constructions.
#1-Unless you have to, don't buy new construction. As stated below, you're paying both mortgage and transfer taxes which can literally be tens of thousands of dollars.
#2-You're also likely paying the fee of the Sellers attorney. The fees are ABSURD for sponsors attorney and can range up to $3,000(I'm an attorney and I am saying that is literally absurd).
#3-You don't know the completion date of the new construction. Typically there are serious issues surrounding Declarations with the City and other documents which need to be filed. Good luck waiting on the Department of Buildings while your money sits in escrow.
#4-You don't know the type of materials they will use. If the model apt has granite countertops, that doesn't mean you will. A little trick thats put into every offering plan is that the builder is required to use materials of similar or comparable quality. Is granite the same as limestone....is stainless steel the same as non stainless steel? Do you even want to go down that road?
#5-Tax savings are overstated. The price is usually much higher to purchase new construction anyway so any tax savings you were contemplating are usually eaten up by the purchase price.
#6-Inflexibility with negotiations- I am representing a purchaser at a brand new building in downtown Brooklyn and the sponsors attorney said that the contract is take it or leave it...no changes. You wont have that problem buying something that is not new construction.

There are many other issues to deal with here but the jist is dont buy it unless you're REALLY in love with it.
2 votes Thank Flag Link Thu Sep 4, 2008
Db,

You've had a few answers, but let me put my 2 cents in.

1. The main difference is that frequently with new construction the buyer pays the deed transfer tax. The is $4 per thousand of the sale price.
2. New houses can and do settle. The most common result is spider like cracks above the upper door jambs going out at a 45 degree angle. Usually a builder will come back near the end of the first year and address these problems. In NY a builder must provide a 1 year warrantee on the whole house and a 10 year warrantee on the the structure.
3. Don't know, out of my area.
4. If the house is not built yet make sure everything that is included is clearly spelled out in the contract. Don't even assume that there is a sidewalk to the front door. Is there going to be grass planted in the yard? How about plantings? Exactly where will the hardwood floors be installed? Is the hardwood select, #1 or #2 grade? How many coats of finish? You get my drift. Spell out EVERYTHING!

I hope this helps. The cost many people fail to include in their purchase is the outdoor landscaping. A nice design with nice plants can add a lot to your overall cost. It can also add substantially to the value and enjoyment of a new home.

Don
Web Reference: http://www.nyhomeseller.com
2 votes Thank Flag Link Sat Aug 23, 2008
DB - I can't speak to closing costs or taxes in NY, but can about settling and "other". All houses settle to some extent. Building codes are designed to minimize problems by specifying footing sizes, etc. for various types of soil.. New home warrantees are designed to deal with the the issues that arise when settling occurs, as well as other problems. Different states have different laws about the timeframes and extent of warrantees. Make sure you have one, and you understand what it covers!
Other things to beware: exactly what is and is not included in the cost? What will your allowances cover? What kind of landscaping? Sod in front, or all around? ? Driveway/walkway paving? Fencing? A deck, or just a header for one? Patio(s)? You can easily run up costs by upgrading and thus exceeding allowances for light fixtures, flooring, number of paint colors, door hardware - the list is as long as the number of parts in a house. The more detailed your specifications (right down to part numbers), the more accurate your builder's estimate can be.
Enjoy the process - and best of luck with your brand new home!
2 votes Thank Flag Link Mon Jul 21, 2008
In addition to the transfer tax, you may also have to pay for a new survey and for the hookup to public water.
1 vote Thank Flag Link Sat Aug 23, 2008
We recently bought in 11694, I am betting not far from you, and it was new construction.

1) Figure 8% for closing costs on new construction in NYC. Our place was a new two family. We walked into closing with 45k down and walked out after plunking 35k down on closing costs. It was disgusting, never again, I tell you. Of course we didn't expect that much of a shave, but live and learn. So 35/450 is 7.77777. I don't know what all the fees were, but higher closing costs in NYC for new construction is the standard operating proceedure, so now I can tell you with hindsight buy something recently renovated, not new. Your bank account will thank you.
2) You usually get like a 1-3 year warranty on a new house. After that, good luck.
3) Tax abatement program ended in I think July of 07, which means the foundation had to be in by then. Not in = no tax abatement, but that is ok since the price is lower. (Its usually built into the price.)
4) This is the BIG BIG ONE:
http://www.brainyzip.com/zipcodes/11/11691.html

You are buying new construction in FAR ROCKAWAY!!! Why not spend a little more on the price, save a lot on the closing costs, and buy a nearly new one in Rockaway Park, anything anything anything above 98th street. Ok, maybe you grew up in FAR ROCKAWAY, but doesn't one tire of endless rows of dreary crime ridden projects? Our place that we bought is on Beach 101st, but you can find a bunch of homes for sale built within the last 5-10 years with good quality construction in Rockaway Park. If you want to be near family, you can always hop on the Q22, but for the kind of money you are about to layout, you will be wasting it buying in Far Rockaway.

Ok, maybe you think that I am being racist or unrealistic. My bet is that you are buying a two family, maybe a three. Go right now, before anything else, on CRAIGLIST and see how many places go BEGGING to be rented in Far Rockaway, and how few there are in Rockaway Park, and how quickly they go. Yeah sure, you might get a good "price" for your property, but you will overpay in terms of closing costs like we did, and then be hard pressed to find tenants to fill it. We were just lucky on that count, because we had many decent people from Far Rockaway find our place because they wanted better schools for their kids, but still be near family. We eventually got 1650 for the 3 bedroom, 2 bath, and 1600 for the 2 bedroom, 2 bath with back yard. Ask yourself, in FAR Rockaway, will you be able to get anywhere near these rents to sustain your investment? I seriously doubt it, especially with all the competition on Craiglist and the fact that those projects that clutter up Far Rockaway are going nowhere soon.
1 vote Thank Flag Link Sun Aug 10, 2008
The only benefit is the warranty, and thank God we had it, and the builder was a stand-up guy. It turns out the sewer guy didn't connect the house line to the city line, he just left it lying in the sand, with the predictable results. So I snaked it twice, pumped it twice, had the city inspect the city sewers, and eventually called the sewer subcontractor myself. He refused to fix it, so the builder had to spring for another sewer guy come down there, rip open the street, and lay a new line- $5000. He is going after the sewer guy for the 5k, I will probably go after him for the two snakes, the two pumps I blew, the chlorox, and the boots, maybe the tolls- total about 1000.

But considering that we paid like what, an extra 16,000 at closing for a 5,000 job, we still lost out. Plus, we only found out about the problem afterwards, so I still had to go down there, cover the crap, and chlorox the heck out of everything. So don't buy new construction, if anything I would pick up something maybe a year or two old, from someone whose hurting after buying new construction.

Good luck.
0 votes Thank Flag Link Sun Nov 2, 2008
In NY you should estimate about 5% for closing costs on new contruction less than 1M purchase price. And about 6% on above 1M. The main diferene comes in the transfer taxes which is normally paid by the seller. But in a new construction there isnt a "seller" so the buyer pays them. sunny_hong@countrywide.com
0 votes Thank Flag Link Fri Aug 22, 2008
You could go with a good Realtor who has experience with new construction. If you email your desired location I can find one for you. I'm at su@suwesely.com.
0 votes Thank Flag Link Tue Jul 22, 2008
Thanks for answering, Susan.

I'm guessing I need a better than average lawyer for this type of purchase as well. Or at least one who has experience with new construction and will be aware of all the extra details.
0 votes Thank Flag Link Tue Jul 22, 2008
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