daunting, but the rewards of owning a brand new home out-weight the
disadvantages if you know the potential pitfalls. The following are
important considerations: Overall Dollar Budget, Location, Cost Per
Square Foot, Finishes, Upgrades, Parking and Delivery Date.
Overall Dollar Budget
To establish a budget for purchasing a home, you should speak with a
mortgage professional prior to looking for property. In terms of your
budget, keep in mind that parking is usually not included in the
purchase price that is quoted by the developer. In addition, in
today's market the list price of the unit is typically not negotiable.
The best way to establish a budget is to determine how much money you
will need as a down payment and how much money you will need as a down
payment and how much you feel comfortable spending, based on your
gross income, for monthly payments. Remember that the real estate
taxes are generally included in your monthly mortgage payment and
should be calculated at a minimum of 2% of the purchase price.
If your down payment is less than 20% of the purchase price, your
lender will require that you purchase private mortgage insurance (PMI)
– this charge will also be included in your monthly payment. Also
factored into your monthly expenses are your assessments, both for the
unit itself and a separate assessment for parking. And finally, add
your monthly mortgage payment.
Location
Generally speaking, the higher the density of the area, the more
costly the condominium or townhouse will be. Then checking out
locations, you may want to consider less developed areas of the city.
Such areas are typically less expensive than those in more developed
areas. Note, that as density increases with new development, it is
highly likely that your property will gain in value, resulting in a
higher return on your investment.
Cost Per Square Foot
When purchasing new construction, the favored method of comparing
value is cost per square foot. This is the method used by developers
to initially price their developments. With the cost per square foot
in mind, you will be able to compare different properties on an equal
basis and determine whether you are purchasing at a favorable price.
Also to be considered when looking at the cost per square foot price
is whether the developer has included such items as granite counter
tops, marble bathrooms, and black or stainless appliances as standard
features. In Chicago, prices per square foot range from $225 to as
much as $1000 per square foot in the Gold Coast.
Finishes
You will need to carefully examine which finishes and appliances the
developer has included in the base price versus which are considered
upgrades. Note that the more expensive finishes such as granite and
marble are not usually included in the base price of a one-bedroom
unit.
Be sure to get a detailed list of specifications in writing from the
developer, indicating the brand and model number of each appliance.
Don't be confused by the finishes and appliances that are shown in the
models you see- they may not be the same as those included in the
quoted price. Models are typically finished with granite and marble,
undermount sinks and hardwood floor laid diagonally but such features
may not be considered standard, particularly in smaller or less
expensive units.
Upgrades
As you can imagine, the cost of upgrades can vary considerably.
Developers commonly charge their cost plus a 20% mark-up for upgrades;
others may charge even more. Try to determine the costs when you and
your realtor are writing up the initial offer. By determining all
costs during the contract period you reduce the chance that upgrade
costs will exceed your budget.
If you keep in mind that many new construction units are not ready for
occupancy for a year or two, you will understand the importance of
having all upgrade costs in writing as part of the initial contract –
at today's prices rather than at costs calculated at inflated prices
one or two years later.
Parking
One of the essential elements of resale value is parking. In a loft
conversion or a high-rise building, parking can vary from
approximately $25,000 to as much as $60,000 depending upon the level
of luxury of the building and the availability of parking in the area.
Since parking spaces have dramatically increased in value, you should
seriously consider purchasing a space whether or not you currently own
a car. Without parking, the later sale of a unit may be more difficult
than that of a comparable unit for which parking is included in the
price.
Delivery Date
Although your contract will specify a delivery date, provisions in the
contract will often allow the developer to deliver your unit much
later than the specified date without penalty. If this is an important
issue to you, you should keep in constant contact with your Realtor
during the construction process as delivery dates can be delayed for
as long as a year and, in rare occasions, even beyond that. You should
also speak with your attorney and incorporate terms into the contract
so that your interests are protected in the event this should occur.
Working With A Realtor
Purchasing a new construction residence can be a rewarding experience
and a wise investment. But there are definitely nuances involved in
purchasing new construction, including the track record of the
developer, the number of "flippers" purchasing in the project, and the
percentage of sold units.
You will be best served by using a Realtor who is familiar with new
construction market, the various developers and their product. With
your Realtor at hand to answer all your questions, your interests will
be represented and protected in all communication with the developer.
If you rely on a real estate professional, you will spare yourself a
great deal of the aggrevation associated with purchasing a new
construction home and, best of all, this representation will be at no
cost to you - the developer pays your Realtor's commission.
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