Why Buy Preconstruction?
Pre-construction sales are those real estate transactions that are initiated before the ground is broken to begin construction of the project.
Q. What is the benefit of “buying” in this pre-construction phase?
A. Price and selection. Pre-construction prices are generally the lowest experienced throughout the entire project and typically lower than like kind resale preexisting properties. In addition, buyers have the best opportunity of property selection without initial risk of binding commitment.
Q. Why to Developers sell pre-construction at lower prices rather than building first and selling for higher prices later?
A. Developers are typically required by their lender to have some percentage of the project presold before they can get their construction loan approved.
There are three typical phases to pre-construction condominium sales:
1. RESERVATION AGREEMENT. The developer provides preliminary site plan, floor plans, features and pricing. All are subject to change during this phase. Buyers reserve units with an “intent to buy” reservation agreement including a cash deposit, usually 5% or less of the anticipated purchase price. The deposit is made to an interest bearing bank trust account for benefit of the Buyer. The deposit does not go to the Developer and is fully refundable with accrued interest to the Buyer at anytime. There is NO substantive risk, yet the Buyer typically receives the absolute best ground floor price with the greatest selection.
2. CONVERSION TO CONTRACT FOR SALES: The Purchase Agreement is presented to the Reservation Holder for signature together with a copy of the state approved condominium documents. The “condo docs” contain the final, exact details of the project including the site plan, floor plans, amenities, features, association rules, by-laws, budget, etc. Buyers are allowed a short period of time, typically one to two weeks to “convert” from reservation to Purchase Agreement by returning the signed agreement with the balance of the first ten percent deposit. The Buyer then has fifteen (15) days from the date of the Purchase Agreement to move forward with the purchase or rescind the agreement for a full refund of all monies paid, with interest, if any.
3. CLOSING THE CONTRACT FOR SALES: This phase occurs when the construction is complete and a Certificate of Occupancy is issued to the developer by the local governing building authority. The construction period varies, of course, with the size of the project and may take 18 to 20 months if the project is a high-rise building. Buyers will be notified by the developer, usually 30 days in advance, of their scheduled closing date and “walk through:” There are many examples of how planning and patience pays off in significant dollar amounts for those buying pre-construction property. Buyers need to plan for each phase and have patience waiting for the project to be built. Of course, there is not guarantee that your project will perform as well as others have, however the rewards for your patience can be substantial in initial purchase price and appreciation.
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