WHAT NEW HOME SALES REPS WON'T TELL YOU
Some DC new home sales and marketing firms seem to have a policy of overpromising and underdelivering when it comes to settlement dates. They quote unrealistic projections for project completion and delivery to spur sales, leading to fallout when buyers are stretched to the limit with long-delayed closings. Their revised promises, claims of being 'almost there!' or ghosting you when you press for answers don't help when your quoted delivery date comes and goes---sometimes three to five times--as rates rise, alternatives become more expensive and your current living situation teeters on being untenable. Be prepared before you sign a contract. Read our tips and give us a call when you're ready to buy a new condo in DC. We'll guide you through your new condo transaction like you're a member of the family!
We explain key factors and suggest basic questions that will give you insight into your delivery date if the sales team and developer are vague or unresponsive. Here we go!
Key Factors Likely To Impact Your DC New Condo Delivery Date
- Construction timeline
- Project Compliance FNMA
- Certificate Of Occupancy
- Pre-Sale Requirement
- Your location in the building
New construction timelines are not unbreakable codes, universal mysteries or transcendental equations. Penciling costs and scheduling is part of the initial development process. Sophisticated software and services exist to handle it, and experienced developers already understand the process and potential pitfalls.
Sales & marketing companies review the goalposts when negotiating for the right to sell the project. Good managers read in their sales staff and good salespeople make it their business to know what the timeline looks like. So when a new condo sales representative won’t speak to the delivery timeline, you can assume that they are either unprepared, or have been instructed by their manager not to discuss it. The exception to this is the sales representative who gives a general timespan, but cautions that they can not guarantee or be more specific because the completion of the project is more than a year off. In this case, there are too many variables and outside influences for the team to confidently project accurately. Look to your ‘outside date’ (the contractual deadline by which the developer must complete and deliver or refund your deposit) as a guide.
Either way, it’s to your benefit to glean as much information as possible and understand the process and challenges of the new construction process as it pertains to your delivery.
Construction Timeline
To start with, the timeline for new condos depends on the size, scope and property attributes of a project. From land purchase to design, zoning/ANC/HPRB and/or review board approvals, permitting, environmental issue mitigation, razing, demolition and the actual constriction process including any design changes, variance needs and inspections, the construction timeline for a new condominium can take anywhere from 8-10 months to five years or more.
The construction timeline for new condos can be impacted by outside influences such as the pandemic that has slowed supply and construction for the past two years. Developers should know at sales release time if any of these are likely to cause delivery setbacks.
Project Compliance | FNMA Financing
FNMA Pre-Sale Requirements
Even if the condominium building is ready to deliver, the sales team may not be. Fannie Mae has pre-sale requirements the developer must meet before deliveries can commence.
For new or newly converted condo projects at least 50% of the total units in the project or subject legal phase must have been conveyed or be under contract for sale to principal residence or second home purchasers.
- For a specific legal phase or phases in a new project, at least 50% of the total units in the subject legal phase(s), considered together with all prior legal phases, must have been conveyed or be under contract for sale to principal residence or second home purchasers.
- For the purposes of this review process, a project consisting of one building cannot have more than one legal phase
- According to our source (a DVM lender), qualifying contracts don’t have to have passed the right-of-rescission period.
What Counts And What Doesn’t?
- Doesn't Count: Investor Units
- Does Count: IZ Units or ADUs
FNMA Waivers
Your developer may negotiated a waiver to allow 30% pre-sales instead of 50%
For project eligibility requirements eligible for a review waiver., see B4-2.1-02, Waiver of Project Review .
- Refer to the Eligibility Matrix for the maximum allowable CLTV and HCLTV ratios. (For example, a mortgage loan for a unit in a PERS-approved project can have a CLTV ratio up to 105% if it meets the Eligibility Matrix and Community Seconds requirements.)
- The CLTV and HCLTV ratios in this column align with the maximum CLTV and HCLTV ratios that are permitted for projects outside of Florida, as described in B4-2.2-01, Limited Review Process.
Details | New & Converted Condos | FNMA
B4-2.2-03, Full Review: Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects (06/05/2018)
Introduction
This topic contains information on the Full Review of units in new and newly converted condo projects, including:
Condo Project Legal Document Review Requirements for Units in New or Newly Converted Projects
The table below provides Fannie Mae’s requirements for the review of the condo project’s legal documents for units in new and newly converted condo projects containing more than four residential units.
Condo Project Legal Document Review Requirements – For Units in New or Newly Converted Condo Projects |
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| Limitations on Ability to Sell/Right of First Refusal | Any right of first refusal in the condo project documents will not adversely impact the rights of a mortgagee or its assignee to:
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| Rights of Condo Mortgagees and Guarantors | The project documents must give the mortgagee and guarantor of the mortgage on any unit in a condo project the right to timely written notice of:
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| First Mortgagee’s Rights Confirmed | No provision of the condo project documents gives a condo unit owner or any other party priority over any rights of the first mortgagee of the condo unit pursuant to its mortgage in the case of payment to the unit owner of insurance proceeds or condemnation awards for losses to or a taking of condo units and/or common elements. |
| Amendments to Documents | Required provisions related to amendments to project documents are as follow:
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Full Review Requirements – For Units in New or Newly Converted Condo Projects |
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| The project, or the subject legal phase, must be “substantially complete” unless other completion arrangements have been approved by Fannie Mae through the PERS review process.There may not be more than one legal phase per building.
“Substantially complete” means that
Note: Fannie Mae does not require the installation of typical buyer selection items such as appliances, floor coverings, counter tops, or light fixtures that are common and customary for the market, although buyer selections that involve the modification of a unit floor plan must be complete. Lenders are expected to obtain appropriate documentation to verify that all buyer selection items for the unit being financed are properly installed prior to closing. |
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At least 50% of the total units in the project or subject legal phase must have been conveyed or be under contract for sale to principal residence or second home purchasers.
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| Individual units in new condo projects must be available for immediate occupancy at the time of loan closing. | |
| If the project is part of a larger development, and the unit owners are required to pay monthly assessments of more than $50 to a separate master association for that development, lenders must review the overall development plan for the master association to evaluate the acceptability of the project. | |
The overall development plan of the project must be reviewed and the following must be acceptable:
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For projects (or the subject legal phase) that are only substantially complete rather than 100% complete, lenders must determine that acceptable completion assurance arrangements that guarantee the future completion of all project facilities, common elements, and limited common elements have been provided. These assurance arrangements may include
Similar arrangements must be provided to support assurances against construction and structural defects. The assurances must
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| The developer or sponsor should provide for and promote the unit owners’ early participation in the management of the project. | |
| The project must meet the condo project legal document requirements in the following section. |
Disclaimer
We compile this information to make our buyers aware and to provide an easy review, we didn’t write it. If you have questions about FNMA rules & regs pertaining to new condo pre-sale requirements, please contact your lender. Also be aware that this information may be incomplete or updated by FNMA at any time, and that there is no guarantee the latest version of requirements is displayed here. Always go to the source, that’s why we provide the links!
Termination and Conversion to For-Lease Property
On occasion, a developer may decide to change course and release the building as a for-lease property rather than a condominium. In this event, the developer enacts the section of the contract commonly known as ‘Termination Option,’ notifies the sales and marketing team of the decision, requests that they cancel sales and withdraw active listings on the MLS. Buyers are compensated only as the contract section states, along with the release of their Earnest Money Deposit. This is a worst-case scenario for buyers, who may have been under contract for a year or more and find themselves in a completely different market when they are forced to start their home search anew, and at a loss for all mortgage and inspection-related fees.
If sales seem to be lagging, sales representatives are keeping mum and the developer is not as communicative and/or productive as would be expected when a building nears completion, start asking questions and digging into SCOUT to view unusual activity such as additional zoning reviews, etc.
Certificate of Occupancy
For new buildings, there are three (3) C of O subsets:
- Conditional
- Completion of core and shell
- Establishment of a new occupancy
New Construction, Use Change, Occupant Load Change:
- If a new building or addition is constructed or there is a change of use, a building permit application with plans is required to be approved, constructed and inspected prior to the approval of a C of O.
- A building permit may also be required to change the occupant load, as determined by the Permit Operations Division.
- C of O for a new construction and load occupancy change (over 5,000 square feet) will be reviewed by District of Energy and Environment (DOEE) Stormwater Management. Failure to request a final inspection of storm water management facilities, and submittal of as-built plans of the completed storm water facility, may result in the denial of the C of O application.
- Revision: If a typographical error was made in a previously issued C of O, the applicant should apply for a revision to the issued C of O. Note that no substantive changes to the use or occupancy are permitted as a revision to an issued C of O.
- Temporary: For use of a building or outdoor event on a temporary basis. Conditions may be imposed as necessary and will include an expiration date. A building permit may be required prior to the issuance of a temporary C of O.
- Completion of Core and Shell: A means to recognize that the core and shell of a building have been substantially and materially completed in accordance with the DC Construction Codes. It does not allow occupancy of a building. A core and shell must be obtained prior to a Conditional Certificate of Occupancy for a new building.
- Conditional Occupancy: A conditional certificate of occupancy may be issued for part of the building before completion of the entire work covered by the building permit.
- Review the Issuance of Conditional Certificates of Occupancy Guidelines and related checklist for more information about the application submission, review and approval process.
Your Location In The Building
Developers generally deliver from the ground floor up. If you’re on the top floor of a new condo building, you can expect to be at the back of the queue for walk-through dates and settlements. Some factors can change this; for instance, buyers who may be traveling internationally during the time they were to settle in order, or those with urgent need for another reason, may be put ahead in the schedule.
Basic Questions To Ask
Get answers to your questions in writing. Try emailing a list to the sales team and ask that the developer respond by providing answers next to each question.
- Are the units all market rate? If not, how many ADU/IZ units are there and how/when will they be sold?
- Do you cap investor purchases? If so, what's the cap? How many investor units are sold todate?
- Did your developer request and receive a pre-sales requirement waiver? Confirm the number of units already sold that qualify for the pre-sale requirement. Will the sales team provide updates on this as requested?
- What is the target sales pace? How will the sales team achieve this pace?
- If it's necessary to lower prices to spur sales pace, will my contract sales price be adjusted down commensurately?
- Are there any environmental, supply chain, financing, approval or other issues that could delay construction?
- When do you expect to have condo documents available to buyers? What is your right-of-rescission period?
- What is the contractual maximum amount of time the developer has to complete the project and deliver units? Are those deadlines different from one another?
- If you can't answer these questions, will you obtain concise answers from the developer?
With few exceptions, you should expect that the timeline for delivery of your new construction home will be longer than projected by the sales team when you purchase. Setting this expectation will allow you to remain calm through the construction process and plan accordingly for rate locks, moving arrangements and rental extensions.
