The Pros and Cons of Buying New Construction Condos New construction condos have been extremely popular among Boston millennial home-buyers and investors in recent years. Many relocation buyers aren’t used to the older historic housing stock in New England and crave the new construction living experience. There are many reasons to buy new construction, while for some, it may not be the best fit. What are some pros and cons of buying new construction?
Here are a few things to keep in mind when buying new construction:
1. Move-in period: If you buy during the pre-sale period, you are reserving the property before it is finished, and many units haven’t been released to the market yet. So you can’t move in right away. In many cases, the buyers who buy during the earlier pre-sale period have to wait for months or even a year for the condos to finish. There could also be construction delays due to the city approval process or city inspections. So make sure to secure your housing options in case there are construction delays.
2. The pricing: new construction condo reservations are usually offered on a first come, first served basis. Some buyers like that they don’t have to go through bidding wars like the normal offering process for buying a finished condo. If you buy during the pre-sale period, keep in mind that seller is often less flexible on price because they have the option to sell the condo to the pubic market after the construction is finished. But then, pre-sale condos are usually cheaper because of the pre-sale stage. The Boston housing market tends to have steady appreciation such that selling a condo six months later or a year later often means higher price.
3. The perception: keep in mind that when you buy a pre-construction condo, you usually don’t see the finished product until closer to the end of the transaction, and by then you don’t have the option to back out. Most developers are good about delivering what they promised in their initial marketing, although expect 5-10% variations to the total square footage due to the construction calculations. The Purchase & Sale Agreement usually allows for 5-10% variation to the total square footage. If the measurements for the walls start from the stud, you may perceive the condo as smaller even though architecturally the measurements are consistent with the original advertisement. You can ask your real estate agent to double check the distance to the stud from the inner wall prior to the transaction, so you may take into account the perception of the space after the distance is taken into account. The difference in perception is usually minimal based on the experience of most of our buyers in the past.
4. Vacant unit effect: During the final walkthrough of the finished condo, the buyers see the finished product for the first time. During this first look, a lot of buyers might feel that the unit looks smaller than they expected when they see the vacant. This is because vacant units always look smaller than when the unit is staged with furniture to give the viewer a better perception of space. So don’t be surprised if you have this feeling during the walkthrough. If you have any concerns, discuss with your real estate agent right away. There is usually a punch list that the seller’s party gives you during this walkhthrough so you may ask the seller to complete your list of items that you aren’t satisfied with. Typical contracts allow the seller 30 days after the walkthrough to complete the items on the punch list.
5. Unexpected events: as with any other transactions, unexpected events can happen with pre-sale condo transactions. This includes construction delays, vandalism, or on rare occasions, when the developers change their plans. When plan changes, the developer is obligated to abide by the terms of the Purchase & Sale agreement even with their new plans. Be sure to review the Purchase & Sale agreement with your closing attorney very carefully. Real Estate agents who are experienced with new constructions will be able to give you tips during this process. Most of our new construction condo transactions over the years have gone smoothly, however we have also seen a transaction in the past where someone put graffiti on the wall of the common garage during construction when the garage walls were exposed. We requested the developer to remove the graffiti afterwards, but it was an unpleasant surprise. Fortunately issues like these can be fixed.
Keep in mind that although buyers pay a lower price during the pre-sale stage for a new construction condo (as opposed to buying a finished brand-new condo), they are taking on the risks we mentioned above because they are buying an unfinished product. If you are ok with the risks we discussed and have prepared accordingly, then you may enjoy what new construction condos have to offer, especially since you can wait for the condo prices to go up during the construction phase before you even have to make your first mortgage payment after closing. As with any transactions, unexpected events can happen, but many home buyers in Boston strive to purchase their dream homes or investment properties. The area has consistently seen steady returns for decades with a strong job market and healthy economic growth.