It’s no secret that new construction is all the rage in Chicago right now, especially in the West Loop and Near North hoods. We want you to be armed with knowledge so you can buy new construction the smart way, so we created this guide last week.
What a lot of new construction buyers may not realize, though, is that buying a condo is a whole different ball game compared to buying a single family home or townhouse. We debunked 5 of the most common questions our agents are asked about new condo developments. If you want to buy new construction, and condos are more your thing, read on!
Q: Why does every unit in the building have a different list price?
A: If you’re buying a condo in a new high rise building in River North, West Loop, or South Loop, the list price will be determined based on the unit’s floor plan, height, and orientation, or the direction it faces. You’ll pay a premium to live on a higher floor with a more scenic view. You’ll also pay a small premium for a unit on a lower floor with a massive terrace. Usually, when these oversized balcony units exist, only one will be available with any given floor plan. Pro tip: these units go the fastest! So do the most expensive and least expensive units in the building. Be ready to snatch!
Q: Are there advantages to being the first owner to go under contract?
A: We know you’re anxious to make your ownership official, but being the first owner in your new building to go under contract won’t help you move in any faster. 50% of units in new condo buildings need to be under contract before anyone can close. Plus, you might be able to snag a better interest rate for your mortgage if you wait. The more owners that are under contract in the building, the less risky your loan will be for lenders to take on. And you certainly don’t want to be the first one to actually close. While you may get your pick of storage lockers and parking spaces, your financing process will be a nightmare. We recommend…be the second buyer to close.
Q: Why are property tax amounts listed as NEW?
A: Don’t dash out the door to buy a new construction condo just yet… We can assure you, there will be property taxes to pay. You just won’t know what your annual property tax bill will amount to until the first bill comes out the following year. Since your new building used to be one piece of land, the first property tax bill will be delivered as one giant tax bill for one lucky occupant. No, they don’t have to pay the whole thing themselves. It will then be split up based on each owner’s percentage of building ownership (usually determined by square footage). If an escrow account for property tax payments is part of your mortgage, the lender will estimate your annual taxes at 1.5% of your purchase price before closing.
Q: Which comes first, the HOA or the homeowners?
A: In Illinois, the builder must transition the homeowner’s association to the condo owners once 75% of the units are sold. At that point, you and your neighbors can decide to hire a management company, or manage the building yourselves. Don’t worry, you usually won’t be starting completely from scratch… Many builders’ contracts require buyers to pay 3 months of assessments into an operating fund at closing to build up reserves for the future HOA.
Q: Why are the assessments so low?
A: Because the builder is trying to sell some condos, and who doesn’t like the look of low assessments! Since the HOA hasn’t formed yet, the builder must submit an estimated assessment schedule based on an estimated expense budget. You guessed it: most builders tend to estimate low. Once you and your new neighbors take charge, plan on raising the dues a bit.
Have another question that didn’t make the list? Send it right over! An expert Chicago real estate agent will send you a thoughtful answer- no automated computer responses here, we promise!