What to Negotiate When Buying New Construction in NYC

When New Yorkers turn to new construction as a potential apartment purchase, they immediately face a variety of perks.

The construction is brand-new, the appliances are fresh off the factory belt, and every detail of the apartment is pristine. When buying a newly constructed unit, there’s no need to worry about fixing anything, removing an entire layer of stress for the buyer.

However, when everything is seemingly perfect, what is left to negotiate for a better deal?

Rest assured, buyers still have a variety of items they can negotiate to get a more favorable outcome. The key is working with an experienced NYC buyer’s agent with experience in new construction and an understanding of market conditions - you’re more likely to get concessions in a buyer’s rather than a seller’s market. 

Below, we highlight the most vital terms buyers can negotiate when purchasing new construction in NYC.

Negotiable terms when buying new construction in NYC

• Price of the unit
• Unit alteration and customization
• Common charges
• Transfer taxes 
• Mansion tax
• Typical buyer closing costs
• Deposit amount
• Interest rate buy-downs
• Mortgage financing contingency
• Working capital and super unit contributions
• Purchase CEMA
• Freebies and perks

Price of the unit

It may be an uphill battle, but it’s always worth trying to negotiate the unit price. 

This item is tough to haggle because developers want to keep the sales price of each unit as high as possible given it potentially impacts the price per square unit of all future units sold. If they are willing to lower the price for one unit, that information will be public record, and other buyers may want to negotiate for the same benefit. 

It’s very unlikely that a developer will concede to lower the price but it never hurts to ask for it as part of a concessions package. It’s also important to remember that the likelihood of the sale price being lowered depends largely on the new development itself and the state of the real estate market at the time. You are more likely to negotiate non-price concessions, as they aren’t recorded publicly.

If a buyer’s market is in full swing and the developer urgently needs to sell more units, there is a higher chance that they may be willing to lower the price of the unit, in addition to other concessions.

Unit alteration and customization

It’s always nice to add a personal touch to your new home, especially if the materials being used are brand new. 

One of the biggest pluses of new development is the opportunity to customize and alter the unit before your purchase; this feature is also one of the most negotiated items when buying new construction in NYC. However, it’s important to know when is the best time to negotiate these features.

Developers are more likely to accommodate requests before construction has advanced significantly, as changes become more challenging and costly to implement later on. It's here that working with a real estate agent experienced in new construction becomes invaluable. 

They can guide you on what requests are reasonable and how to frame them to ensure a successful negotiation. They might also help you understand which alterations could enhance the property's value versus those that are merely personal preferences and could limit the property's appeal on the resale market.

Common charges

While customization options may be the most fun aspect to haggle about, monthly expenses are arguably the most important.

These fees can cover a wide range of services and amenities, including maintenance, security, and other common charges. Given that these costs will affect your monthly budget for the duration of your residence, securing favorable terms can significantly impact your financial well-being.

One strategy is to negotiate for a temporary reduction in these fees. For example, you might secure an agreement as part of your purchase where the developer pays the first year or two of common charges.

Additionally, buyers can discuss the specifics of these monthly fees. In some cases, there may be room to customize the level of service or amenities included, potentially reducing monthly costs. For instance, if you do not need a parking space included in the monthly fees, you could negotiate to exclude this from your package, lowering your overall expenses.

Transfer taxes

Traditionally, sellers are responsible for paying the transfer taxes. But in the case of new construction, it is customary for the tax to be paid for by the buyer on behalf of the developer. 

This, however, can be negotiated. The more favorable the market towards buyers, the greater the chance that a developer will be willing to cover some or all of the transfer taxes as part of the deal. 

Transfer taxes are levied by the city and state when a property's title changes hands. In NYC, properties that sell under $500,000 will have a 1% transfer tax, while properties that sell over that amount will carry a 1.425% transfer tax. All properties also carry an additional 0.40 percent transfer tax paid to New York State. 

Mansion tax

The mansion tax, which applies to properties sold for consideration greater than $1 million in NYC, can be a significant portion of a buyer’s closing costs and is always worth negotiating. 

The rate of this tax increases with the price of the property, reaching significant sums for high-value properties, especially if you include transfer taxes and other typical closing costs. 

Negotiating with developers to adjust the sale price to mitigate the impact of the mansion tax or to have the developer partially cover the tax often makes closing costs much more manageable.

Purchase CEMA

A Consolidation, Extension, and Modification Agreement (CEMA) can be an excellent way for buyers to save on the mortgage recording tax. However, a CEMA is much less common in new construction, especially if the market favors the seller.

A CEMA allows buyers to essentially "consolidate" their mortgage with the developer's existing mortgage on the property—in this case, the construction loan—"extend" the terms, and then "modify" them to their new mortgage, reducing the amount subject to the mortgage recording tax by only taxing the new money being loaned.

The recording tax, applicable whenever a new mortgage is recorded, varies depending on the loan amount and the property's location within the city. By utilizing a CEMA, the buyer is only responsible for the tax on the difference between the original developer's loan and their new loan amount, not the full mortgage amount. Those additional savings are then often split between both parties.

While it may be difficult to secure a CEMA when buying a new development, buyers should inquire if this option is available as it can result in significant savings.

Typical buyer closing costs

Understanding closing costs when buying in a new development is a critical step for buyers, as these expenses can significantly impact the overall cost of your purchase. 

They include a mix of taxes and lender fees, along with other miscellaneous expenses associated with finalizing the property purchase.

Typically, condo closing costs for buyers in NYC can range from 2% to 4% of the purchase price, but for new constructions, these costs can sometimes be 5% or higher due to additional fees such as the New York State transfer tax, the NYC Real Property Transfer Tax, and the sponsor's attorney fees. 

Another significant component of closing costs in new developments is title insurance, which protects against any discrepancies or legal issues related to the property’s title. Mortgage-related fees, including application and origination fees, also contribute to the closing costs, alongside any points paid upfront to reduce the loan's interest rate.

Some condo developers might be willing to cover certain fees or offer credits at closing to make the purchase more attractive to buyers. For instance, it's not uncommon for developers to offer to pay some or all of the traditional buyer fees such as mansion tax, or even offer a blanket concession that is a fixed dollar amount to be used toward closing costs.

Contract deposit amount

For new constructions in NYC, the deposit placed at time of contact signing is usually a percentage of the purchase price. While there's no fixed rate, it's common for developers to request anywhere from 10% to 20% of the purchase price at the time of signing the contract. 

This percentage can be subject to negotiation, particularly in a buyer's market or when a developer is keen to hit a milestone number of units in contract at a new development.

Negotiating the contract deposit amount can offer buyers flexibility and potentially reduce the financial outlay before the unit or building is completed. 

For instance, reducing the deposit percentage can be a key negotiation point in scenarios where a buyer may not want to liquidate a large portion of investments so far in advance of building completion. Conversely, a larger contract deposit might be negotiated in return for greater concessions from the developer at closing.

Interest rate buy-downs

An interest rate buy-down involves an upfront payment to the lender at closing that reduces the mortgage rate for the initial years of the loan or possibly for its entire duration. This can result in significantly lower monthly mortgage payments, making this an attractive option for buyers seeking to maximize their financial flexibility.

Securing an interest rate buy-down can translate into considerable savings over time. Aim to negotiate this perk during new construction purchases where developers or builders might be willing to offer concessions to close a sale. Negotiating for a developer to pay for an interest rate buy-down can sometimes be achieved by working directly with a preferred lender for the development or through a closing incentive paid by the developer to your lender at closing.

When considering this option, buyers must understand the different types of buy-downs available. A "temporary buy-down" reduces the interest rate for a specific period, typically 1-3 years, before reverting to the original rate. In contrast, a "permanent buy-down" lowers the interest rate for the life of the loan, though this option is much less common as an incentive offered by the developer.

Mortgage financing contingency

It’s always good to have a safeguard in place, and a mortgage financing contingency is one of many that can help protect a buyer.

It’s not common for a developer to accept this contingency as part of the offer, but buyers are always encouraged to negotiate this. If the developer does concede to allowing a mortgage financing contingency, it may be through a preferred lender. 

Many developers prefer to work with trusted lenders with whom they have built a relationship. Besides being the most likely way to secure a mortgage financing contingency, it’s also a potential way to benefit from interest rate buy-downs or generally lower mortgage rates, as some developers work with their lenders to offer these as an incentive for buyers.

Working capital and super unit contributions

These one-time fees are often paid at closing by the buyer and are designed to fund the building’s working capital fund. If the building is large enough and plans to offer a unit for a live-in super, that cost may also be part of the working capital fund contribution.

The cost is usually one to two months’ worth of common charges (condo association fees) and is typically paid by the buyer. New developers are typically reluctant to cover these charges, but buyers can still request this as part of any concessions package negotiation.

Work closely with your real estate agent to plan a way to include this in negotiations. If the developer doesn’t agree to pay the contributions, they may be willing to cover other closing costs, depending on the market.  

Freebies and perks

Think of freebies and perks as a combination of specific fees, common charges, and amenities that the developer may cover or offer in order to make the transaction more appealing. 

While some developers will have an entire package of perks on hand to sweeten the deal, others choose to play it safe. That doesn’t mean you can’t negotiate for those perks, however. 

One common perk that buyers can negotiate is a parking space. In a city where parking is at a premium, having a dedicated space can be a significant convenience and a valuable asset. If the new construction project includes parking facilities, buyers should explore the possibility of including a parking space in their purchase, either at a reduced cost or as an inclusion in the sale price.

Storage units are another highly coveted amenity in NYC, where apartment living often comes with limited space. Negotiating the inclusion of a storage unit within the building can provide much-needed relief from the constraints of apartment storage. Like parking spaces, storage units add considerable value and convenience, making them a worthwhile negotiation point.

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