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Home > Buying Brand New Homes - Preconstruction Purchase Process

Buying Pre-Construction - Condos
The Process & The Pitfalls

◊ Buying at [Condos] Pre-Construction
  ◊ Price
  ◊ Potential Appreciation
  ◊ Ongoing Appreciation
  ◊ Supply and Demand
  ◊ Limited Upfront Carrying Costs
  ◊ Closing Costs
  ◊ Disclaimer

PRICE
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 public’s 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.

POTENTIAL APPRECIATION
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.

ONGOING APPRECIATION
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 some 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.
Due to the housing bubble crash that preceded the revival of new construction projects in South Florida, most pre-construction condo developers require down payments in installments, usually 10% at reservation, an additional 10% at contract, and at different milestones, such as ground breaking, and topping off the roof, anywhere between 30% to 60%, with the balance of 50%-20% due at closing.

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.

The real estate crash of 2006-2008 left many developers and banks holding the bag.  As a result, requirement are much more stringent these days.  Though there are developers who still accept a 10% or 20% down payment until closing, it is primarily in the single family and town home communities.  If you wish to purchase a condo in its pre-construction stage, deposits requirement range from 50% to 80% with the balance at closing.  The deposits are due at specific milestones of the building process.  With 20% at contract signing, followed by additional installments due at groundbreaking, foundation, top-off, and so forth.

CLOSING COSTS
Whether purchasing a new construction single family home, town home, or condo, please be advised that to the price of your unit, developers add a fee at closing, ranging between .5% to 2.5% of purchase price.  Single family and town home developers claim those fees to cover "administrative" expenditures.  Condo developers actually use a significant portion of the fee to cover property recording fees, title search, exam, and insurance, and title company fees. 

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. 

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.

DISCLAIMER
Mazor Realty, LLC is a Florida licensed real estate broker and is competent only to provide information of a factual nature concerning properties for sale. Nothing in this document or website is intended as investment, legal, or accounting advice, nor should the information contained herein be construed or understood as such. Only professionals licensed as investment counselors, accountants, and attorneys are qualified to provide counsel with regard to these other areas.

 


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Mazor Realty, LLC
Boca Raton, FL 33432
Office: 561-998-9500
Email:  Sarah@MazorRealty.com    

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Pre and New Construction information on this website is not paid advertising. 
Mazor Realty is not an exclusive agent for the developers, unless otherwise stated.
Our loyalties are to our clients, as we represent you, our client, to the developers as BUYER'S AGENTS
In resale transactions, in compliance with Florida law, Mazor Realty represents their clients (Buyers and Sellers) as TRANSACTION BROKERS.  
Please click on the hyperlinks to learn about the different representations.

What you read on www.SarahMazor.com is independent information drawn from developers' material, press reports, public records,  and extensive research. For professional service and straight forward, objective information, so YOU can determine whether to purchase,
contact us via email at Sarah@MazorRealty.com or 561-998-9500

Please note that Mazor Realty does its best to update its website, however the information in this database is not guaranteed to be accurate. Availability, pricing, and builders' rules and regulations are dynamic in nature. Please contact Mazor Realty for up-to-the-minute information and for an appointment to preview properties.

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