Developers today are pushing all of their closing costs onto the buyer, inflating the raw value of a unit.

Instead of a $1,200,000 price tag a buyer is expected to pay asking price, their attorney, closing fees (CLICK HERE to see a list of typical Condo Closing Fees) PLUS sponsor attorney fees.

In order to keep the value of their units expensive and make sure a high sale price is recorded as public record, sponsors will pay closing cost credits at closing. This becomes a separate deal or a rebate if you will for the buyer. The raw cost of the apartment is decreased for the buyer, but the public will never know this.

Break Down

Listing price is: $1,200,000

Deal Specifics: Buyer’s pay all closing costs for themselves and sponsor

Closing Cost Credit: $25,000

Recoded Sale Price: $1,200,000

Actual Purchase Price after credit: $1,175,000

If a buyer is contingent on a mortgage an appraiser will scrutinize how much of a closing cost credit was given to other comparable units sold in the building ,and how much the borrower in this circumstance is receiving. In order to proceed with lending to the buyer, the unit MUST appraise for $1,200,000 despite the true value and purchase price of $1,175,000 (which will be paid at closing). Even if you’re working with a developer’s preferred lender whom has pre-approved the building, and the units valuations in a neighborhood, as sales proceed and units become rental units during partial building closings, appraisers and banks will begin to question the building’s value. Post 2008 Financial Crisis, appraisers are hired as a 3rd party value determinate. Banks might have pre-approved the building and the project, as a pitch to acquire more mortgage business from buyer’s but an appraiser is supposed to scrutinize and value property to ensure 2008 doesn’t happen ALL OVER AGAIN.

On a hypothetical new development condo unit of 56 units, 18% or 10 have closed and turned on to become rentals, and 75% or 35 units have been sold and closed. As more units close, the building’s make up changes. Typically I see that smaller boutique buildings have more primary residents living in the units, verses mega developments that turn in to investment units and rental properties. If you’re looking to a sense of a community, a smaller, intimate building is probably your best bet.

Sources: Recent Buyer Represented transaction at Long Island City Condo Developments