Buying a New Condo
Before you sign the offer for a new condo apartment building with an extended closing research the nearby competitive buildings that are one to two years in age. Look at the units that are similar in building size to the one you want to purchase and divide the purchase price by the square footage of the unit and that will provide you with a price per square foot of building. Now do the same for the new unit you are looking to buy. If the price per square foot for the new unit is substantially higher than the comparables you may have difficulty arranging financing for the upcoming closing.
On the closing of your new unit which can be 2-4 years from the purchase date the appraiser looks for comparables in the competing buildings in the area of recently sold comparable units because the sales from your building have not closed and are therefore not available to research. Secondly the lender wants to see how your unit will compete in the open market. If you bought a new unit at a substantially higher price per square foot than the comparables the chances of the market catching up are slim in a stable or downward trending market.
The lender at closing will arrange a mortgage based on the lower of the two values, either your purchase price or the appraised value.
If the appraisal supports your purchase price you may still not be in the clear. If the developer offered you buyer incentives the value of those incentives must be subtracted from the original purchase price.
Here is an example:
Your builder offers to pay your maintenance fee for twelve months after closing. That amount of money is deducted from the purchase price which means you will be adding more money to your down payment.
If the developer is offering cash back incentives that amount of money may also be deducted from the original purchase price.
Understand the “lenders rules” for lending prior to making a final purchasing decision. Secondly have a well thought out back up plan if the appraisal comes in below the purchase price.