Buying New Condos In DC

We get it. The lure of shiny, new fimishes and fixtures, pristine common spaces, out-of-the-box appliances and systems, and in-unit washer/dryers can be strong. And the purchase process is so easy compared to dealing with individual sellers and their listing agents. Or is it? Buying new condos in DC isn’t always as simple as it seems.

buying new construction in DC

In our decade+ of new home sales and management experience, we accumulated a wealth of knowledge about the industry and what buyers should, but often don’t, know. Here are our top tips.

Partner With A Construction-Savvy Agent

  • Be sure your agent is expert in new construction. Just because an agent has represented buyers who have purchased new homes, doesn’t mean they understand development and its related risks.
  • You’ll want a buyer agent with training and first-hand experience in the building and sales processes. To be really effective, they’ll need to understand building quality, timetables, construction sequences, sales strategies and potential pitfalls so they can let you know if something is atypical. Knowledge of DC developers, their history and projects is also beneficial.
  • Ideally, your buyer agent will have actually worked for developers in the past, as we have. They’ll know how to protect your interests and set realistic expectations.
  • You won’t know if your agent is contacting us for project information, but it happens frequently–and that means they don’t have the knowledge they should possess to represent your interests.
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Did You Know?

Visiting a sales center or registering with a developer’s sales rep without your agent can cancel developers’ comittment to pay your agent’s commission.
Always let your agent make new construction inquiries and appointments for you. Be sure your agent accompanies you on the first appointment.
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New Boards

Once you take possession of your new condo, you’ll want to participate in forming the new board. Whether you sit on the board or not, it is essential that new condo owners understand what’s required, why each step is important, and how the new boards actions–or lack of them–will affect owners well into the future.

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Bullet Points

  • Research the market, lending and resales first
  • Partner with an experienced agent
  • Review the developer’s contract carefully
  • Know what’s negotiable and what’s not

Zach & Pat

Susan & Alex responded to our inquiry immediately and took the time to get to know us and what we were looking for in a new home, while also thoroughly explaining the process and what we should expect. As we started the process of purchasing a new construction condo, Susan and Alex became our biggest advocates. They helped us deal with the condo developer to make sure that our concerns were addressed and they asked the questions that we didn’t know we should be asking.

Common Questions From New Home Buyers

WHAT 'S INCLUDED IN DEVELOPER CONDO DOCS?

DC developers are required to issue a Public Offering Statement (Code of the District of Columbia § 42–1904.04)to buyers. Here’s the shortlist of what it includes:

The characteristics of the condominium and the units offered, including all unusual and material circumstances or features affecting the condominium;

The name and principal address of the developer and the condominium;

Names and addresses of the attorney primarily responsible for the preparation of the condominium documents, the general contractor, if any, all contractors who are primarily responsible for the construction, reconstruction or renovation of the electrical, plumbing or mechanical systems or the roof of the condominium, and the architect and engineer primarily responsible for the design, construction or renovation of the condominium;

A general narrative description of the condominium stating the total number of units in the offering; the total number of units planned to be sold and the number of units to be rented; the total number of units that may be included in the condominium by reason of future expansion or merger of the project by the declarant;

A copy of the condominium instruments, with a brief narrative statement describing each and including:

Projected budget for at least the first year of the condominium’s operation (including projected common expense assessments for each unit);

Provisions for enforcement of liens for assessments;

A statement of the amount, or a statement that there is no amount, included in the projected budget as a reserve for repairs and replacement;

The estimated amount of any initial or special condominium fee due from the purchaser on or before settlement of the purchase contract and the basis of such fees;

A description of any restraints on alienation, including restrictions on the rental of units;

A description of any service not reflected in the proposed budget that the developer provides or expenses the developer will pay that may become, at any subsequent time, a common expense of the unit owners’ association, and the projected common expense assessment attributable to each of those services or expenses for the association and for each type of unit;

Copies of the deed to be delivered to a purchaser to evidence his or her interest in the unit and of the contract of sale that a purchaser is required to sign;

A copy of any management contract, lease of recreational areas, and any other contract or agreement substantially affecting the use or maintenance of, or access to all or any part of the condominium with a brief narrative statement of the effect of each such agreement upon a purchaser, the condominium unit owners and the condominium, and a statement of the relationship, if any, between the developer and the managing agent or firm;

A general statement of:

(A) The status of construction;

(B) The project’s compliance with zoning, site plan and building permit regulations;

(C) Source of financing available and the estimated amount necessary to complete all improvements shown on the plats and plans as “not yet completed” or “not yet begun” which declarant is obligated to complete; and

(D) The projected date of completion of construction or renovation of the major amenities of the condominium;

(9) The significant terms of any encumbrances, easements, liens and matters of title affecting the condominium;

(10) The significant terms of any financing offered by or through the declarant to purchasers of units in the condominium;

(11) The provisions and any significant limitations of any warranties provided by the declarant on the units and the common elements;

(12) A statement that the contract purchaser of a condominium unit may, prior to conveyance, cancel the purchase transaction within 15 days following the date of execution of the contract by the purchaser or the receipt of a current public offering statement, whichever is later.

Read the full text here:

WHAT ABOUT HOME INSPECTIONS?

Builders try to discourage outside home inspections, and they can throw up a lot of road blocks to the process. Don’t be fooled by the old sales rep’s line: “You’ll have an inspection prior to settlement with our construction supervisor (or an independent company contracted by the developer).”  This procedure is not an inspection, it is a walk-through conducted by someone who works for the developer, not you. They’re not invested in finding issues, especially not major ones. In fact, these contractors may be bonused if they report zero issues.

Your home inspection should be performed by a qualified, licensed general home inspector you hire.

Two inspections, possibly three, are recommended during the process:

  • Pre-drywall inspection If you purchase in the early stages of construction, a pre-drywall inspection is valuable. An inspector familiar with new construction can easily see how the home is built and spot inferior or flawed foundations, framing, materials, wiring, plumbing, and so on. Builders are reluctant to allow this inspection, or flatly refuse, usually with the excuse that their insurance carrier will not allow it.
  • If a pre-drywall and/or post-drywall inspection is allowed and reveals non-cosmetic issues requiring correction, you should have the right to hire your inspector to return and inspect the corrections before they’re covered by drywall.
  • A pre-closing inspection of the finished unit is usually restricted by the developer to the date and time of the final walkthrough.

All inspection issues should be added to the developer’s punchlist to be addressed prior to final walkthrough. You’ll often find a clause in the developer’s contract that says the developer isn’t required to address them. Your agent should push to have them all remedied.

A final walk-through should take place 5-10 days prior to settlement. This gives the builder time to make punchlist corrections. It’s ideal to have all items completed prior to settlement. Almost all developer contracts state that they may complete punchlist items after closing, but getting corrections made following settlement can be invasive, a communication time-suck, and a long waiting game. All your leverage is gone if you’ve closed the transaction, so your agent should push for pre-settlement repairs.

IS THERE A REQUIRED BUILDER WARRANTY IN DC?

The District of Columbia Condominium Act requires developers to provide a minimum 2 year warranty against structural defects for individual units and common elements. The warranty period begins the unit’s settlement date.

Some developers may specify the types of defects that are covered, extend the warranty period, or include other provisions. It’s important to read these clauses carefully.

WHAT WON'T DEVELOPER SALES REPS SAY?

Those friendly new home sales reps are licensed agents who represent the developer, and their duty and loyalty are to them, not you. They’re trained in what to say–and what not to say. And there’s a lot they may not know themselves.

Unfortunately, that can leave new construction buyers in the dark about important factors like timeline, sales requirements, the developer’s commitment to delivering the project as condos,  and more. Learn more:

WHAT SHOULD NEW CONDO BOARDS KNOW?

We’re glad you asked! A lot. If you’re purchasing a new condominium in DC, you need to know the procedure for forming a new board, how to protect the association and unit owners against construction defects, and more. Read our page on DC Condo Associations.

5 Initial Steps To A New Home Purchase

  1. Sales Centers offer an overview of the project, a model or diagrams of the site, common area layouts and floor plans of individual units. You’ll attend your first meeting with your agent, who will register you as an interested buyer, obligating the developer to pay your agent’s commission. At the meeting you’ll get a tour of the project if construction has progressed far enough, and discuss pre-construction pricing and potential escalation or tiered pricing, timeframe for delivery, and other pertinent details. If bluebrints and plans are available, we will ask to see them. You’ll see samples of fixtures and finishes, and learn about options and upgrades;
  2. Some developers will accept a non-binding hold deposit on a unit prior to finalizing their public offering statement package. More often in recent years, though,  developers will wait until their documents are in hand to begin selling. Not only does this motivate buyers to make a buying decision quickly, it assures the developer that your decision is binding since you’ll be signing a purchase agreement. We typically advise our clients to sleect their unit of choice and make a contract appointment to be held within a few days. This will effectively (though unofficially) “hold” the unit, and the buyer will have time to think over their decision. We also request a review copy of the contract;
  3. Your contract appointment will take between an hour and two hours. You’ll be asked to bring ID, and a check for your deposit, the amount of which is set by the developer. You may also be asked to pay a portion of any upgrades or options chosen aside from the base unit. The developer’s sales representative typically reviews each clause with you and your agent and answers any questions you might have. Here are some points to be aware of:
    • The developer’s contract is written by attornerys for the developer, and terms favor the developer. Having a real estate attorney review the contract before your signing appointment is valuable, though few, if any, terms in the developer contract will be negotiable. We look for particular red flags and negotiate by priority. We also write in a few terms we consider necessary. Price negotiation is case-by-case, but for larger projects, price is often non-negotiable. It has also become popular among developers in recent years to eliminate the financing contingency in new construction purchase agreements. This can be dangerous, considering that loss of employment, uncontrollable events (like the Covid pandemic), health issues or anything else that can affect credit and loss of income, can cause your lender to deny your loan. Without a financing contingency, buyers can be held in default and lose their initial deposit. This is where the strength of your pre-approval is key, not the one being issued by the preferred lender, but the one we advised you to obtain earlier in the home search process. We may every effort to negotiate a financing contingency, but if efforts fail, these potential issues must be seriously considered;
    • Most developers make agreements with several lenders to provide mortgage services to their projects’ buyers. You’ll want to check their rates and fees against the pre-approval we will have advised you to obtain at our first meeting. Developer stipulations that their lender and title company must be used often come with a penalty, most often in the form of recordation tax payment. This is one of the terms we often try to negotiate if the preferred lender’s terms aren’t competitive. A preferred title company is used by the developer because that title company has already done the pre-development work on the property and holds all the documentation. This is often less concerning for buyers than use of the preferred lender, as title costs are one-time fees and vary only slightly between providers. You’ll want to be assured that the quality of the title search is good, however;
    • Associations are just a framework before a new building starts to deliver and people move in, so developers don’t fully fund them. Monthly fees will jump once the association is fully established, common areas are being staffed and utilized and services are engaged for cleaning, maintenance, concierge staffing, etc.

4. You’ll receive a copy of the public offering statement once you sign the purchase agreement, and the 15 day rescission period for review of the material begins at that time;

5. The public offering statement review period is the ideal time to deep dive into research on the developer, contractors and architect. Learn about their reputations and past projects. Since these parties must be identified in the POS, research will be faster and easier. You can also  seek the advice of an attorney when reviewing your POS.

Consider the projected delivery timetable against current construction stage. If the project is in the very early stages, and you’re purchasing from plates and plans, for instance, you’re assuming more risk and the offering price should reflect that. Your contract will stipulate that the developer may make substitutions in fixtures and finishes, change layouts and even cancel the project (condominium converts to rental apartments). What could go wrong? A lot. Read about it in What New Home Sales Reps Won’t Tell You).

We understand the need for many of the clauses contained in developers’ contracts, but buyers assume a good deal of risk in the purchase of new construction, as well. Their interests should be protected to the greatest degree possible.

We understand the need for many of the clauses contained in developers’ contracts, but buyers assume a good deal of risk in the purchase of new construction, as well. Their interests should be protected to the greatest degree possible.

Aside from partnering with an experienced agent and comsulting with a real estate attorney, ere are some ways you can protect yourself against making a new home purchase mistake:

 

Look For Red Flags In Developer Contracts

An agent experienced in new home construction will be able to identify red flags in developer contracts. Your agent should recommend that you consult an attorney if it seems necessary, and try to negotiate some beneficial provisions for you throughout the offer phase. A few red flags:

  • Are EMD funds being held outside of escrow, or with an escrow company owned by the developer?
  • Does the contract prohibit any inspections or visits during construction?
  • Is the developer funding a reasonable percentage of association fees?
  • Is there a scope of work addendum describing specs and materials?
  • What are the warranties and guarantees?
  • Is the project held in an LLC? If so, is the LLC transparent as to the name of the person controlling the LLC?
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DID YOU KNOW?

Developer contracts can run to 45 pages. These are just a few of the items you’ll want to scrutinize and understand to protect yourself in a new construction contract and home purchase.

Research 'Preferred' Lenders And Title

  • Who are the ‘preferred’ lender and title company working for? Lenders handling a developer’s project will have all the necessary information necessary to approve a new construction loan on that particular development, something that’s not necessarily true of another lender. But that doesn’t mean you should blindly accept the developer’s lender & title companies, even though they will offer you incentives or create penalties if you don’t. Research costs and quality before making a decision.
  • ‘Preferred lenders’ don’t always offer the best programs, rates or customer service to buyers. They’re chosen by developer because they understand new construction and are likely providing discounted services to the developer in exchange for bulk business. Your service may not match the developer’s. Your loan programs may not be as advantageous than they would be from a lender of your choosing, and your interest rate may be higher. So close your ears to the siren song of closing cost credits and carefully weigh penalties as you evaluate how the ‘preferred lender’ programs fit your needs. By law, buyers have the right to choose their title company and lender. If the developer is punitive in a quest to force buyers to work with preferred lenders and title, perhaps their development is not the best choice. What can you do? Get apples-to-apples estimates and worksheets from three lenders in addition to the ‘preferred’ lender. Ask your agent about the pros and cons of running concurrent loans. Do the math to make sure you’re not making a disadvantageous 30 year decision to save a few thousand dollars in the short term. We help buyers make smart loan comparisons and offer strategies for developer negotiation, timing and loan alternatives. We guide our clients through the process in order to assure as much as possible that the lender delivers the loan as promised, and that service is not inferior.
  • Lenders aren’t the only entity affecting your new construction purchase. Title companies can impact your transaction, too. Developers select a ‘preferred title company’ because they need their transaction-related company information managed under one roof. Because the developer is referring a large amount of business to this title company—often for multiple projects over time–loyalties tend to lean towards the developer rather than the buyer. ‘Preferred’ title companies are not chosen for their outstanding service or even for the quality of their product. It is usually a cost decision. In recent years, developers have begun tying payment of transfer tax to the use of their preferred title company and/or lender. Transfer tax is typically paid by the seller, while recordation tax is paid by the buyer. The amounts are similar and represent a significant sum of money. Your experienced buyer agent will help you navigate the developer’s title selection and work to ensure the best service possible.

Research Developer Reputation

  • Collect anecdotal evidence. Talk to homeowners in one of the developer’s previous projects about their experience and issues following settlement–but be aware that the quality of some builders can vary from project to project–along with the price point and margins. Also understand that if the community is still selling, you may get feedback that paints an unrealistically rosy picture since buyers will want to protect their investment.
  • For condo and townhome purchasers: Ask the sales rep how many units are being sold per month. Your agent won’t be able to get an accurate count on the MRIS because builders don’t list them all. You won’t know what they sold for, or what the monthly sales rate is without doing some investigation on your own. Bring your BS detector.  Sometimes new home sales reps ‘encourage sales’ with less than forthright information and tactics.
  • Ask how many investors are purchasing in the community. Low investor ratio is important to your HOA health and future resale value. If the ratio threatens the warrantability of the project or limits financing options for new buyers, a purchase could be a poor investment.
  • Condo and townhome new construction purchases carry their own set of issues. Know what they are so you can make an informed decision.Developers, like all of us, have different styles, priorities and work ethics. Want ‘the best’? That may be a subjective term. Unfortunately, there are home builders everywhere whose quality is poor and whose attitudes towards their customers match. Ask your experienced new construction agent to share first-hand information about their experiences with local developers and builders. All have a few unhappy customers, but if a developer or builder has a reputation for poor product and customer service, you’ll want to know before considering their projects.
  • Quality is key and in that regard, show beats tell.  Look for signs of quality—or the lack of it. Are the buildings well constructed? Holding up as expected? Do existing homeowners in recently completed projects seem happy? Nose through the records, too. Are the associations levying special assessments to cure issues? Litigating against the developer? Are the developer’s projects appreciating well or stagnating a few years down the road? Find out how long the build you’re interested in has been in progress. Have there been delays beyond the expected? Why? This may indicate some financial or other weakness on the part of the developer that could prove to be a problem. Have the contractor, subs and expediters been paid in a timely manner? Can the developer complete the project, and with the level of quality promised? Don’t stop at the developer. Is the contractor reputable? How have their previous projects held up?  If purchasing a condo or townhome, you’ll want to invest in a healthy project because you’re not just buying a unit, you’re buying into the total project. Its reputation will help determine your home’s value long- term.

'Flips' Aren't New Construction

  • Are you confusing flips with new construction? “Flips” aren’t new homes. They’re homes that have been purchased by a rehabber and “improved” for quick resale. Unfortunately, a good number of flippers focus more on cosmetic aspects of the home and less on its structural integrity or soundness of electrical, plumbing and mechanical elements. Their goals are speed and profit, not care and concern. And that’s the good news. Some unscrupulous DC and NVA flippers have been caught drywalling over serious structural issues that later became homeowner nightmares. While some flippers do a good job, flips are an area of great concern and should be approached with extreme caution. Their popularity has exploded in DC in recent decades, as have the number of serious construction issues and lawsuits.
  • With inadequate regulatory oversight for permitted and unpermitted residential construction in DC, bad behavior can be commonplace. Anyone can decide to start flipping houses, whether they are qualified or not. Permits may or may not be pulled, and permits can be vague regarding scope. Work beyond the permit scope is often performed. DCRA inspections are often ignored when permitted work is completed. Without the inspection(s), you have no way of knowing if the work was performed properly and to code.
  • When work is not permitted and inspected so the permit can be closed out by the DOB, the new owner becomes liable for the work. You can be cited, fined and even forced to remove the work.
  • Flip properties are typically held as an LLC to limit liability, so there may be little or no legal recourse if you experience problems.
  • Flips are classified as renovations rather than ground-up construction, so they’re subject to spotty regulations rather than the more rigorous building code to which new projects are expected to adhere.
  • Buyers of ‘flips’ should have multiple inspections by expert providers. But it is never enough. Inspectors can not see through walls, floors and ceilings. They aren’t able to perform acts that have the potential to cause damage, no matter how slight or cosmetic. General Home Inspectors are not structural engineers, surveyors, master plumbers, master electricians or roofers. And even specialty experts can not adequately assess a home without performing some disallowed invasive acts. Home buyers sometimes decide they don’t want to pay for every inspection allowed them and/or choose inspectors based on price instead of expertise and service types.
  • Buyers may not be equipped to adequately assess permitting documentation and inspection results.

Taking every safeguard will not prevent the purchase of bad ‘flips’ and renovations.

Still thinking about purchasing a flipped home? Read these stories, then make up your mind:

Disclaimer

Information provided on this page is posted for educational purposes only. It is not to be construed as technical, legal, tax or financial planning advice. Citations do not constitute endorsements. Always consult experts before making real estate-related decisions.

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