Buying New Construction

Unless you already can answer many of the questions below, you need a buyer agent to represent you: one that is not only experienced with new developments but is very familiar with the area, the project, and the sales manager/staff of the project you are looking to buy in. With a good agent, you will save time, money, and yourself a lot of stress.

With many new construction projects coming onto the market (not all projects are “good buys” in our opinion), you really need an area expert to:

  • Guide you through the different areas of San Francisco
  • Guide you through the projects
  • Help you choose between new and perhaps “almost new” (projects that are 1-5 years old)
  • Help you find the right lender for the building
  • Help you choose the right floor plan (make the right choice of size, layout, view, location, and floor)
  • Help you negotiate the best possible deal
  • Help you understand the risks of everything you sign as well as understand the disclosures
  • Advise you on possible rents and finding tenants
  • Make sure you close on time so you are not in breach of contract

If you are familiar with all of these steps, you probably don’t need our help.

However, if you are like the majority of purchasers out there, please read on, as we can save you a tremendous amount of time, money, opportunity costs, and unnecessary stress. To a buyer of new construction, buying a condo seems to be a straightforward process, but it’s not always.

The ideal scenario: you walk into the sales office, take a tour of the model units (if available), review floor plans, review units available, and then make a decision to plop down a deposit (often 3%) to reserve a unit. In some cases, you will go to contract immediately and receive a very large stack of legal documents including CC&R’s, 3R report, etc. You then wait for the building to be built, take a final inspection tour, sign a couple of documents, close escrow, get your keys, move-in, and you’re done…right? If you’re lucky, the process can be this smooth. But unfortunately, it doesn’t always go as smoothly. Stress, wasted time, and even forfeited deposit money can result if you, the buyer, do not have knowledgeable and experienced guidance through the process.

Here are some things to think about when buying.

Know how to choose the “right” project for you

Many projects are planned and more are coming. Tens of thousands of new units are scheduled to be completed in the next five to ten years. How do you know which one is the best to buy?

  • Which project will be the best investment and ROI for you?
  • Will the projects have resale restrictions and how will that affect you?
  • How about owner-occupied restrictions? Pet restrictions? How does this affect your investment?
  • Should you buy now or wait to buy in the next project?
  • Should you buy in a new building in an up-and-coming area or buy in a more established area?
  • What is the demographic of people in the building you are looking to buy in? First-time buyers? Young couples without kids? Empty nesters? What are the implications to your investment?
  • How will the current rezoning efforts of the SF Planning Department affect your investment?
  • How do you buy a property in the “path-of-progress” and maximally take advantage of future appreciation?
  • How will a new project affect the project you want to buy in? Will it make it less or more attractive (i.e., will it reduce or increase demand for your desired building and your investment)?
  • Each project will attract a different group of buyers. Do you know what type of people are looking to buy in The Beacon versus The Lansing, for example? For one thing, the location of The Beacon attracts commuters to the peninsula because of its close proximity to the Caltrain depot on 4th Street as well as easy access to Highway 280. Buyers at The Lansing are looking for a quiet, secluded location with incredibly easy access to the East Bay via the Bay Bridge 1st Street on-ramp. The Lansing residents are within walking distance to downtown, a major draw that The Beacon is unable to compete with.

Know how to buy at the “right” time

The prices offered for the condo units in a new project are set by the builder’s selling office. These prices are generally based on market demand, but can fluctuate up or down based on a host of factors:

  • What is the existing resale inventory?
  • Which competing projects are currently available and will be available in the future? For example, how will a large sales release from a new project down the street affect demand for a nearby project? How do you know when these releases will occur and their effect on the market will be?
  • What time of the year are you planning to buy? Yes, what time of year will impact how aggressively a builder plans to price their units.
  • How many units are left in the building and what is the current rate of sales? Is the builder getting nervous because units are not moving? If so, how can you take advantage of this situation?
  • Does the unit price include upgrades? How you can negotiate to get upgrades thrown in? Can you negotiate to receive credit for closing costs?
  • How can you use the knowledge of price setting dynamics and builder/sales and marketing company psyche to secure the best price for your unit?

Know how to maximize your ROI (if you are buying for investment)

Along with the standard factors that affect ROI, there are a whole host of others to consider:

  • How “rentable” is the unit that you want to buy?
  • How can you get the highest rent by targeting corporate executives with an appropriately furnished unit?
  • Which corporate rental and relocation companies should you work with?
  • How can you use a management company to effectively manage your property?
  • What are the legal restrictions to flipping properties and how do they affect your investment?
  • What are your building’s HOA limitations on length of leases, pets, and sub-leases and how will these limitation impact your unit’s “rentability” and profit potential?
  • How do you complete unit conversions? (Changing a Junior 1 bedroom to a 1 bedroom or a 1+den bedroom to a 2 bedroom, for example)
  • Which unit (square footage, number of bedrooms) will rent out for the maximum rent per dollar?
  • When you are ready to sell for top dollar, how do you use staging companies effectively?
  • How should you market and position the sale of your unit to compete with the hundreds of other “similar units” out there?
  • How do you avoid buying “unlucky” floors or unit numbers or units with poor Feng Shui elements which can adversely affect the appeal of your unit to Asian buyers (who constitute a significant percentage of buyers of new construction), which may result in reduced demand and price for your unit?

Closing

  • You will get a huge contract with dozens of disclosures and the condo documents – are you really going to know how to read this document and things to look out for? Who’s going to explain to you what’s in the document and if it even has any significance/impact on you and your investment?
  • What will happen if you can’t get your loan or close in time? You could very well lose your deposit for liquidated damages. How do you avoid this scenario?
  • Many lenders cannot lend to a new construction project, especially one that isn’t even built yet! Which ones will be able to and which ones can get you the best rate and loan terms? You could jeopardize your deposit by choosing a lender that cannot close on your property in time!
  • What happens when you will close in 8 months from now and you can’t lock a rate in on a loan? Who offers long rate locks on loans?
  • What about communication with the title company, who will be swamped with sometimes hundreds of closings in a week?
  • How do you make sure you make the best decision on who should install upgrades? Should you use the upgrades provided by the builder, or should you do it yourself?
  • Can you get the upgrades included in the loan? What about HOA dues? How about some of your closing costs?
  • When do you inspect the unit? What about scheduling the appraiser? What happens if you don’t like the installation of the upgrades or the condition of the “new” unit?
  • How do you handle and coordinate the move-out and move-in procedures? How do you schedule your move-in time when there are dozens of people moving in at once? How do you make sure you are not charged for any damage to the common areas?

See our team of agents at CLIMB Real Estate.

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