Buying a New Development Condo in NYC: Costs and Risks

Buying a new development condo in NYC can cost more at closing than buying a resale, because the offering plan can pass the sponsor's own seller costs, such as transfer taxes and its attorney's fee, to you, and can add a working capital contribution. You also take on construction-era risks: closing dates that move, closing under a temporary certificate of occupancy, and an unfinished punch list.

All of these terms are spelled out in the building's offering plan and amendments, filed with the New York Attorney General. Some are negotiable. This guide lists the costs and risks to raise with your attorney before you sign.

How a sponsor sale differs from a resale

Resale condos have their own wrinkle: the board's right of first refusal. See condo right of first refusal.

Costs you may pay that a resale buyer usually doesn't

The sponsor's transfer taxes

New York State says the base transfer tax and additional base tax are paid by the seller. But if the seller doesn't pay, the buyer must. Sponsor plans can make the buyer pay, so check yours. The Attorney General's regulations require a plan that shifts a seller's statutory cost to the buyer to flag it as a special risk, show it in the Schedule A footnotes and say that a statutory obligation is being transferred.

On a $1,500,000 condo, the state base transfer tax is $6,000 and the city RPTT is $21,375. If the plan shifts both to you, that is $27,375 on top of the $15,000 mansion tax you would owe as a buyer anyway. Check the exact figures with the NYC closing cost calculator and the mansion tax calculator, and read NYC and NYS transfer taxes explained.

Sponsor's attorney fee

The plan must state whether you pay any part of the sponsor's attorney fee or the lender's attorney fee, and estimate it. This is in addition to your own attorney.

Working capital contribution

The plan must say whether the condo will have a working capital fund and a reserve fund, who contributes, and how they can be used. If buyers contribute, the plan states the amount, and it is paid at closing on top of the price.

Tax and charge adjustments

If units have not yet been separately assessed for property tax when the first unit closes, the sponsor may collect your share of an escrow covering taxes for the six months after the first closing. The plan must also give a numerical example of all closing costs for a typical unit. Use that example as your checklist.

Your deposit and the escrow rules

New York law treats deposits on co-op and condo offerings as the buyer's money, held in trust until closing, and the Attorney General's regulations require them to be kept in a special escrow account. For new condos, the rules add detail:

• The plan sets the deposit. A deposit above 10% of the price must be flagged as a special risk.
• The escrow agent must be a New York-admitted attorney or law firm. The sponsor and its principals cannot sign on the account.
• Funds go into a segregated escrow account at an FDIC-insured bank in New York within five business days after the escrow agreement is signed. Amounts over FDIC limits are not federally insured, which the plan must flag.
• Interest is credited to you, unless the sponsor uses a separate IOLA account as the plan allows. No fees can come out of the account.
• The escrow agent must notify you within 10 business days. If you don't get notice within 15 business days after paying, you may cancel and rescind within 90 days after paying.
• If you default, the sponsor must send a written demand at least 30 days before it can declare the deposit forfeited.

See the 10% contract deposit in NYC for how deposits work in resales.

Closing timing, the TCO and the punch list

1. Signing

   Review period or rescission window

   At the sponsor’s option: at least 3 business days to review the plan before signing, or at least 7 days after signing to rescind.

2. Sales reach 15%

   Plan declared effective

   By a filed amendment or notice to buyers. No unit can close before the effectiveness amendment is accepted (for plans over five units).

3. Building nears completion

   TCO issued

   The Department of Buildings issues a temporary certificate of occupancy when the building is safe to occupy but issues remain before a final CO.

4. 30+ days before closing

   Closing notice

   The sponsor serves notice of your closing date, unless you waived the 30 days.

5. Before closing

   Walk-through and punch list

   You inspect the unit and list unfinished or defective items.

6. After closing

   Final CO and punch-list work

   The sponsor completes remaining work. Track it in writing.

Closing under a temporary CO

No one may legally occupy a new building until the Department of Buildings issues a CO or TCO. TCOs typically expire 90 days after issuance and can be renewed. If the first closing may happen before the permanent CO, the regulations require the sponsor to keep deposits in escrow, or post a letter of credit or bond, to cover the amount its engineer or architect certifies is needed to get the permanent CO. Ask your attorney how much is being held back and for how long. You can check a building's CO status on Roofy's building lookup or read how to read a certificate of occupancy.

Delays

The plan must state when the sponsor expects the first closing. If it slips 12 months or more, buyers must be offered the right to rescind. If the first-year budget is pushed back more than six months and the new projection is 25% or more higher, buyers must also be offered rescission.

Punch lists and warranties

Your purchase agreement sets how punch-list items are handled. Get the list in writing at the walk-through. The plan must describe any sponsor warranty and must say whether New York's housing merchant implied warranty applies. That law covers for-sale units in buildings of five stories or less and provides one year for workmanship, two years for plumbing, electrical, heating, cooling and ventilation, and six years for material defects, from the warranty date. Taller buildings fall outside it, so the sponsor's written warranty matters more. The sponsor must also assign appliance manufacturer warranties to you at or before closing.

Taxes and abatements

The plan's Schedule A shows estimated taxes for each unit, and the Real Estate Taxes section explains any exemption or abatement and when it ends. A low tax bill that depends on a benefit with a phase-out can jump later. See 421-a abatements when they expire.

Separately, the NYC co-op and condo abatement is available only for units that are the owner's primary residence, to owners with no more than three residential units in the development. You must buy on or before January 5 to qualify for the next tax year, and the board or its agent applies for the whole building each year. Estimate it with the co-op/condo abatement estimator.

Risk checklist for your attorney

• Read the Special Risks section first, then every amendment.
• Is your purchase contingent on financing? If not, the plan must flag it, and losing your loan could cost your deposit.
• Is there a “time is of the essence” clause? It must be explained and flagged as a special risk.
• Can the sponsor rent unsold units instead of selling them? How long will the sponsor control the board?
• Is the reserve fund enough for the first five years of capital needs?
• Does the risk of loss from fire or other damage stay with the sponsor until closing?
• Which closing costs are shifted to you, and are any negotiable?
• Has the sponsor posted any bond or security for completing construction? If not, the plan must flag it.