While sellers have, understandably, embraced the current market dynamic, it has left a lot of buyers scrambling and demoralized. These are buyers who have gone through several iterations of offer submissions. They’ve stripped their offers of contingencies: financing, appraisal and even home inspection. They’ve included escalation clauses at $10K, $20K, $50K or more above asking price. They’ve done all of this in hopes of submitting the most competitive offer possible, yet they still find themselves outbid and outmaneuvered. For those who’ve been shut out of the condo resale market, new construction may be the solution.
New construction removes the urgency of having to make snap purchase decisions that sometimes compel buyers to pay well above list prices and waive protections such as home inspections. The typical condo resale experience in our current market goes something like this: Property goes live on Thursday; open house is on Sunday; deadline for offers is on Tuesday; offer rejection comes on Wednesday.
In new construction, there isn’t the same feeding frenzy over one unit. New construction condo projects usually consist of multiple units with similar floor plans and features. If you lose out on one unit, then there’s probably another comparable unit elsewhere in the building. And because buyers aren’t competing for a single unit, bidding wars and multiple offers are rare in new construction. In fact, there are usually more opportunities for price negotiations and incentives in new construction than in resales.
New construction is not without risk. For starters, new construction is notorious for delays. There are so many variables that can affect a project’s delivery date, from weather to contractors to the city’s bureaucracy and agency backlogs. Buyers of new construction often find themselves planning and then readjusting their lives around tentative delivery dates. It’s important to understand that delivery dates are often moving targets, so buyers should have a contingency plan. For those who do have timing flexibility and value price certainty, then new construction is a good alternative.
There’s also a fear factor in purchasing something that doesn’t exist yet. While it’s easy to be drawn to the “new” in new construction and the opportunities for customization that it can sometimes afford from the selection of finishes to moving or deleting walls, new construction can be unnerving.
As any homeowner will attest, homeownership — new or resale — is a leap of faith. But having the luxury of time to conduct due diligence without the pressures of the deadlines, competing offers, bidding wars and risky concessions that are commonplace in today’s resale market can be reassuring.
In the District, buyers have the added benefit of a legally mandatory 15-day cancellation period when they go under contract for a new construction purchase compared to the three-day period for condo resales. This can make buying off floor plans while a project is under construction less daunting.
The do’s and don’ts of new construction
•It’s important to identify who the key players are in a condo project. Prospective buyers of new construction should ask about the developer, the architect and the construction company collaborating on the project as these players are not interchangeable.
•Developers rarely have their own construction arms, so they routinely hire a third-party company to do the physical construction of the building. Buyers should ask the listing agent for developer, construction company and architect references, while inquiring: What are some other projects that this trio, either collectively or individually, has done in the past? Buyers can research and even visit examples of past projects to get a better sense of the style and quality of work.
•If a project is under construction, then buyers can request a hard-hat tour and make periodic hard-hat visits to the building. These visits can be especially helpful in providing buyers with a more tangible home-buying experience. This not only allows buyers to see the bones of their new home and how it’s being constructed, but can also help them gauge construction progress and timeline. Consider it a red flag if there are no opportunities for hard-hat tours or there is resistance on the part of a developer to entertain that request.
•Buyers shouldn’t rely on floor plans alone as they are for illustrative purposes only. Read the fine print and review the architectural plans which are the definitive source for measurements and detail the layouts for your new condo. Architectural plans are usually kept on site in the construction office, though listing agents may have a copy in their sales offices as well. Buyers should review these plans or find someone knowledgeable to help them navigate the plans. Buyers should take care to request the final, approved plans that have been submitted to the city.
•Buyers should make sure that they receive a schedule of finishes for their new condo that clearly spells out what finishes (size, style, brand) their home is to receive. This schedule of finishes should be included in the purchase contract and initialed by both parties as acknowledgment that this has been received and agreed to. This is actually useful for both parties because it eliminates any uncertainty about finishes and sets clear expectations on that front.
Timur Loynab is a vice president with McWilliams Ballard in Washington.