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The process of purchasing an apartment in a new development often starts long before there is anything to tour. Buyers select from plans and renderings — not completed spaces. New developments are also particularly appealing in the US, as it means apartments have up-to-date building codes requiring less early maintenance with good energy efficiency often better achieved than on retrofit projects, which can be arranged from the outset; financing is key here and firms such as LBC Mortgage can provide new homebuyers with the funding necessary to accomplish this process.
But the process is a bit more byzantine than purchasing an existing home. Payments are progressive, contracts are tighter and the risk continues until settlement is reached. Mortgage pre-approvals, including those from LBC Mortgage, are usually conditional and must be reviewed as construction progresses. As apartments and multi-family housing comprise a larger share of new permits in major U.S. cities, this guide shares what matters most from choosing the project to the final key handover.
The first choice is not the apartment but the position of the apartment. In the United States, where you live determines more than just your lifestyle. It has an impact on resale value, the demand for rental properties, property taxes and can even affect financing terms. Apartment investments in the public transit-centric, job-centric, and downtown-central areas tend to hold their value better during market downturns. Urban planning statistics continue to demonstrate that properties located in close proximity to rail lines or by sways typically show a greater degree of price resilience than the broader market.
Zoning also plays a role. Housing developments on land zoned for mid or high density were less likely to get caught up in planning-related disputes that led to a delay. Local approval procedures differ from state to city, but proposals that follow existing zoning guidelines typically have an easier time moving through the process.
The shininess of a sales brochure is of little relevance where the developer has no successful track record. Buyers need to check on completed projects, not just current ones. In past cycles, how long did builds take, and were there fights or suits at the handover? In the U.S., there’s no legal obligation for developers to report defect rates publicly, so buyer reviews, court records and media coverage become useful indicators. A developer with several successful projects completed under one brand is typically a safer bet than a single-purpose entity that’s established solely for one development.
New buildings are supposed to meet local and federal building codes, but construction quality is still in doubt. Material, soundproofing and insulation standards can also vary greatly from one project to another. Energy-efficiency standards have gotten more stringent in many states, but real-world comfort levels can be different. So it would be wise to scrutinize the actual, detailed specs rather than assuming something was included in light of marketing images.
Pre-purchasing before a building is ready for occupancy typically allows buyers to pay today’s price for tomorrow’s home. In rising markets, it can work out in the buyer’s favor. In cases of flat or declining markets, it can also lock buyers into a price above the home’s actual market value. Recent U.S. housing data reveals that off-the-plan buyers during strong market cycles invariably enjoyed equity gains by completion (Afterpay transactions get a similar long look but the reversal of terms), whilst contracting closer to market peaks some buyers came up shorter at settlement with their valuations. Price certainty cuts both ways.
The down payment for the vast majority of new apartment contracts in the United States is typically about 10 percent, although it can vary from state to state and developer to developer. Most times, deposits are held in escrow until the closing, which brings down risk but removes capital for a very long time. Buyers need to consider opportunity cost and be sure they can satisfy final lending conditions, regardless of changing bank policies during construction.
Off-the-plan contracts are typically drafted in the developer’s favor. Sunset clauses, permissible changes to design and delaying mechanisms should all be carefully considered. Such delays of six to twelve months are very common, especially in times when there is a scarcity of labor, the ‘supply chain’ isn’t functioning as it should be or changes of regulations. Knowing just how much the final layout, size, or finishes can change, and under what conditions a buyer can back out of the contract, is paramount ahead of signing.
A smart lawyer who knows new construction buyers is crucial. They also review title structure, unit plans, homeowners association (HOA) rules and any easements that wouldn’t be apparent from marketing materials. In apartment buildings, shared amenities and long-term maintenance commitments could have a serious impact on recurring costs. HOA fees for larger U.S. cities usually fall between $3,000 and $8,000 annually, depending on amenities, services and building size. When purchasing a new build, buyers need to consider:
Lenders generally offer certain conditional loan approval when contracts are signed, and the final okay comes a lot closer to closing. Lending standards could change during the construction project, and potential buyers will want to keep a cushion of cash and have realistic expectations. While a lot of the risk is borne by the developer, since many buyers are vulnerable when it comes to both delays and cost overruns, flexibility and thinking long term matter.
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