Buying Pre-Construction - Condos
Buying at [Condos] Pre-Construction
◊ Potential Appreciation
◊ Ongoing Appreciation
◊ Supply and Demand
◊ Limited Upfront Carrying Costs
◊ Closing Costs
◊ Selling Early
When a developer plans a new development of any nature, the firm has many hurdles to overcome, not the least of which is financial. Whether the developer is a major group or a local contractor, financial backers gauge interest in a project based on pre-sale reservations. Both commercial lenders and private investors ascertain the buying publics actual level of interest prior to funding a project. With adequate interest, funding has a strong potential for moving forward. This can translate into potential savings for buyers who are willing to reserve a unit or make a purchase at this earliest stage.
Although there is never a guaranty, in many cases the "first day" price will be lower than the price for subsequent purchasers. In some cases, developers even offer additional incentives when the opening bell rings. Of course, as the project progresses from imagination to reality, interest by end-users increases. Needless to say, with a more definite picture, pricing tends to increase. Again, although this has been the trend thus far, there is no guaranty that this will continue into the future.
Many projects are developed in phases, especially the condo towers. For example, the developer will build the first tower, followed by a second, and sometimes a third or even fourth. Of course, the first tower prices tend toward entry level and each new tower shows an increase, in some cases significant.
SUPPLY AND DEMAND
The economic rule of supply and demand certainly has been coming into play with South Florida real estate, especially waterfront and water access properties. At this point in time, the demand is very high. Due to restrictions by the various municipalities and counties involved, there are certain limitations in terms of the number of available properties. According to The Luxury Team analysts, over the next eight years, the baby boomer flood will start to peak. Demand may be even greater than it is now, and the overall supply will probably be more limited.
LIMITED UPFRONT CARRYING COSTS
Reservation Agreements: First, a reservation is nothing more than a Right of First Refusal. You, as a buyer, are under no obligation whatsoever. For this position, you will place a reservation fee of anywhere from $10,000 to 10% of the proposed purchase price. At the point where the developer is ready to sell the units, you elect to move forward with a purchase contract or to bow out. If you decide the purchase is not for you, the reservation fee is refunded in full. In other words, during the reservation phase, you have nothing to lose.
FYI: Though developers prefer to go directly to binding purchase agreement i.e. contract, Reservation Agreements are used when they choose to begin sales prior to having all permits in place, and prior to condominium documents approval by the Florida State Government.
If you decide to go ahead with the purchase agreement, payment of the balance of the first 10% will be required. You will then be granted a 15-day (calendar) rescission period (for CONDOS only) during which buyers may obtain an attorney to review the contract and condominium documents, or at the very least do so themselves. Once the rescission period is over, buyers are committed and any defaults will result in a loss of the deposit.
When the building site preparation begins, a second 10% deposit is generally required. From this point forward, the purchase remains on hold until the development is complete and the property can move forward to closing in which case either a cash payoff or mortgage will be required.
In addition to the "builder's fee" buyer should expect to deposit 2 or 3 times the monthly maintenance fee into the Home owner/condo association reserves.
In summary, in addition to financing (mortgage fees) it is sensible
to expect approximately 2% closing fees. This information is not
intended to dissuade purchase of pre-construction residences, rather
to inform and prepare buyers, so they are not first made aware of
these fees at closing.
With pre-completion re-sales, the units are made available to the public as the current market pricing as determined by the developer and/or original buyer. Buyers can list their properties with the developer who will then make them available for purchase. The exact percentage of price and costs involved vary. Buyers may also obtain the services of a real estate company to promote their unit, though as a rule, MLS listing before closing on property is prohibited by developer and may be a breach of contract.
PLEASE NOTE: In the rare events when assignments are allowed, most developers keep the initial deposit of buyer number one until closing. The reason for holding these funds, claim the developers, is that buyer one's (the assigner) liability does not stop with the assignment. In the event that buyer number two (the assignee) does not go through with the purchase, buyer number one (the assigner) would be required to close on the property. In addition, please be aware that there are assignment fees that range from .25% to 7% and more. Mazor Realty recommends that when purchasing property, read your contract carefully, and ask questions!!
A simultaneous closing occurs when the developer closes on the property with the original buyer who then immediately sells the property to an end-user. To ascertain availability and costs for either of these programs, consult your Mazor Realty associate.
Mazor Realty's policy is putting clients' interests first! Clients of
Mazor Realty benefit from the "Double Effort" approach! Ask us about it!
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Boca Raton, FL 33432