As someone with a lot of experience in being the listing agent on new condominium buildings, I often get asked the same questions from new buyers or their agents about how the process works. It is substantially different from buying a house, or even buying a “re-sale” condo. So, I’ve compiled a list of things to expect when making this type of purchase:
1. Expect builder addenda. While standard MLS forms are often used to write up a purchase and sale of a new condo (sometimes they’re not), you can bet that they’ll be supplemented with several builder addenda. Two of the most common are the Standard Addendum, which outlines basic material facts of the agreement, and the Limited Warranty Addendum, which goes through what items are covered under warranty and what’s not.
These addenda are required, and have been carefully drafted by the seller’s attorney. For this reason, crossing out language in them or adding in something is not generally allowed. If you have a concern about an item you see in the addenda, consult an attorney or ask the seller/listing agent for clarification.
2. Expect a slightly longer response time. While many people selling their homes can look over documents immediately, you have to remember that the seller of a condo building is an entity, and sometimes a new offer must be reviewed by several people. Most sellers have standard operating hours, so if you submit an offer on a Friday afternoon, you may have to wait until Monday for a response. During the week, about 48 hours seems to be a pretty standard response time.
3. Expect to pay the equivalent of 2 months of homeowner’s dues at escrow. This is not 2 months in advance, and this is not an option. The 2 month’s of homeowner’s dues is for the sole purpose of building up the reserve account so that there is repair money if needed. However, if you’re one of the early purchasers in a building, you can also expect to not pay homeowner’s dues monthly for a while – dues don’t generally kick in until the building is 70% occupied (this is the point where the homeowners take control of the building, rather than the seller).
4. Expect a builder walk-through (sometimes). For new construction, you can expect that a representative of the seller will likely walk through the home with you so you can discuss any imperfections you see. However, keep in mind that in today’s distressed economy, a good handful of these new buildings are under second ownership, and the owner may not necessarily be the builder anymore. For this reason, be sure to get an inspection, but don’t expect the seller to agree to all repair items as they don’t have a construction team on hand to handle it.
5. Expect kinks. Many people think that when they move into a brand new building, everything should run perfectly. This is rarely the case. If you are one of the first occupants of a new condo, you definitely have to expect kinks. Expect that the elevator might break down once or twice, or a unit 3 doors down from you might get a leak. These things are normal in new construction (and its much better to work the kinks out now than after the building is all sold). Be patient with construction noise, confusion about which parking spot belongs to which person, and other issues that may arise. Keep your seller representative’s phone number handy (this is the person in charge of running the operations of the building, NOT the listing agent/sales office) and let them know if you see anything unusual that might need attention.