Considerations for purchasers of new construction projects in New York
There are several major distinctions associated with real estate contracts for newly constructed homes in New York. The two major distinctions are the additional fees paid by the purchaser and the implied warranties covering the nature of the construction. These distinctions are customary in New York and should be carefully considered when deciding whether purchasing a newly constructed home is right for you.
When purchasing a new construction home in New York, a major factor to consider is that the Seller will likely try to shift the burden of ancillary costs to the Purchaser. There are usually clauses in the purchase Contract which result in the Purchaser being responsible for certain costs and fees that are customarily covered by the Seller in transactions for older homes. Common examples of these additional fees include requiring the Purchaser to purchase a survey through the Seller’s surveyor, transfer taxes, Seller’s legal fee, and administrative fees. These clauses may or may not be negotiable depending on the Seller. The purpose of these hidden fees is to recoup some of the costs associated with the project and to increase revenue. By incorporating extra costs into the Contract, the Seller is also able to list the property for a lower asking price making the unit more appealing to potential buyers.
It is up to your attorney to spot these deviations and try to negotiate their removal. If these additions are not negotiable your attorney will need to make sure that each charge is adequately explained to you and that you understand the consequences.
A good real estate attorney will know exactly where these fees are located in your contract. He or she will easily be able to point out each fee and explain the implications associated with each one. A good Real Estate Attorney will also know the best way to negotiate their removal.
Aside from getting a brand new home, another major benefit of purchasing a new construction is the implied warranties that buyers receive. According to the New York General Business Law Article 36-B purchasers of single family homes or individual cooperative or condominium units in a structure of five stories or less receive special benefits. Those special benefits include special warranties that extend the liability of the builder beyond closing.
First, Purchasers will receive a one year warranty against the builder’s failure to construct the home in a skillful manner (GBL §777-A(1)(a)). This warranty includes defective workmanship, defective materials supplied to the builder, and defective design (provided the design was provided by a design professional retained exclusively by the builder). This ensures that the builder has completed all work in accordance with industry standards and used materials that are commonly accepted in the industry.
Second, Purchasers will receive a two year warranty that ensures the installation of plumbing, electrical, heating, cooling and ventilation systems of the home were completed without defects (GBL §777-A(1)(b)). The warranty covers any defect that occurs as a result of the builder not installing said systems in a skillful manner. It should be noted that this warranty does not cover the goods themselves. Rather, it covers the manner in which these goods were installed.
Third, Purchasers will receive a six year warranty which ensures that the home will be free from material defects (GBL §777-A(1)(c)). A material defect can be defined as a condition of the property that would have a significant adverse impact on the value of the real property. An example of a material defect would be a defect with the home’s foundation. This warranty covers major structural defects in the home and ensures that you are protected in the event that one of these major defects are discovered within the six years that the warranty is applicable.
As previously mentioned, these warranties do not extend to the goods sold incidental to the transaction (i.e. stove, refrigerators, freezer, air conditioners, etc…). Rather, GBL §777-A covers defects that may arise due to a builder’s failure to have installed the systems in a skillful manner. Defects with respect to the goods themselves are covered by article two of the uniform commercial code.
When considering the purchase of a newly constructed home remember that retaining the right attorney should be your paramount priority. You should ensure that your attorney has experience dealing with new construction contracts and that he or she is aware of all of the intricacies involved in the transaction. An effective real estate attorney will ensure that your interests are protected from contract negotiation through your closing date.
If you have any questions about purchasing a new construction please feel free to contact our office and speak with one of our experienced real estate attorneys.