Purchasing pre-construction condos in williamsburg. A few questions.

Asked by Phillip Rosen, 11210 Mon Aug 25, 2008

(1) It seems that many condos if not most are sold in Williamsburg prior to the completion of construction. What is the rough ratio of this?

(2) This practice seems incredibly risky for the buyer especially considering that developers are likely feeling crunched by the liquidity crisis. Delays and possibly compromised quality seem possible if the banks make money tighter. Is there some major factor mitigating the buyers risk that I am missing?

(3) Just how will eliminating pre-construction condos from our consideration effect our negotiating position and choices? We frankly feel that the investment is too large to be buying site unseen. How will this hurt us?

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shong, , New York, NY
Tue Aug 26, 2008
Many developments are now starting sales closer to the closing date. Whereas many new developments a year ago started sales more than a year before expected completion. Some people just dont mind the wait. Of course now its very unpredictable with the financial stability. Know the building youre looking to buy inside out. Know how many are in contract. Go by the building every couple of weeks to see if there is continuous work being done to complete. Unfortunately, with new developments most if not all the terms favor the sponsor. Remember most people got into contract not know the market would be the way it is now. YOu will see less and less people buying in new developments. But eventually prices will come down even lower and it will peak interest again.
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Phillip Rosen, Home Buyer, 11210
Mon Aug 25, 2008
"If you do not mind the wait because closing dates are very unpredictable then why not?"

Well for one, I don't feel confident that I know what I am getting. Given that the new developments in Williamsburg are going for over $700 a square foot, when the neighborhood average is $350, then the building and the units have to be top notch. Short of litigation, what recourse is there if the final product doesn't meet expectations?

It seems like a very big gamble that (1) The developer won't run out of cash (2) They will finish close to or on schedule (3) The quality meets expectations (4) They haven't fudged the numbers on any dimensions.

In fact it seems like such a big gamble I am surpised that so many units sell this way and I am trying to identify what it is that makes this attractive. Where is the upside to the gamble?
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shong, , New York, NY
Mon Aug 25, 2008
Yes, purchasing a new construction can be risky. You should make sure you knwo the sale of the units in the building is healthy. Ideally, you want to purchase in a building is that more than half sold at least. If you do not mind the wait because closing dates are very unpredictable then why not? There are so many factors to look at. Ask lots of questions. Every development will probably say theyve sold tons but you need to get proof. Many buildings that have just broken ground will be much riskier not knowing whats ahead. Review the offering plan carefully and make sure you have mortgage contingency. sunny_hong@countrywide.com
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Daniel Gersh…, Other Pro, New York, NE
Mon Aug 25, 2008
I cant give you a ratio but I can tell you one can look to Miami and Park Slope (to a lesser extent) to provide a good answer to your question. The biggest benefit of pre-constructions is the price, and, to a lesser extent, the ability to wait on moving for some time (if you're in a long lease). Having said that, the trade off, is as you mention, that you are splurging on a place site unseen. Much of the same occurred in Miami. The liquidity is much better in New York, however, you really don't know whether some of these builders have the funds necessary to complete the project, and the time frame within which they can realistically complete it. I currently have two clients (separate) who have been waiting to close on condos for approximately one year after the date they were promised the project would be completed.

Also, the materials-hence the Park Slope reference. These builders seem to be trying to cut corners by using second grade materials and bad workmanship to finish the jobs. Many condos that I have personally viewed in downtown Brooklyn have the identical issue. Builders need $ and to get the job done quick. They're not concerned, necessarily, with the bathtub being even or the microwave working.

Lastly, the feeling of giving a hefty deposit when you don't know what something will look like or when (or if) it will be done, would bother me personally.

I guess you can tell I don't like the whole pre-construction mindset, but thats simply my experience and personal opinion.
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