When developers plan to construct a new development, regardless of location, their are numerous hurdles to consider, the most crucial being the financial aspect. Whether the developer is a national group or a local family contractor,  both private financiers  and banking institutions justify interest in the developments viability based on pre-sale reservations. With sufficient interest generated pe-launch, funding is normally forthcoming, which then translates into potential savings for buyers who are willing to reserve a unit or purchase at the earliest possible stage.

POTENTIAL APPRECIATION

Although there is never a guarantee, the initial pre-launch pricing will be considerably lower than the price for subsequent purchasers. As the project moves from the drawing board to reality, interest by the end-user will typically increase and subsequently the developers prices will rise. Unfortunately, although this has been the normal trend, there are no guarantees that this will continue in the future.

LONGER TERM APPRECIATION

Many projects are developed in phases, especially master planned communities and condos. For example, the developer will build the first phase, followed by a second, and sometimes a third or even fourth. Of course, phase one prices tend toward entry level and each new phase shows an increase, which in some cases can be significant, especially where demand has been strong, build qualities are high, management is in place professional and local services and infrastructure are more than adequate, such as schools, health care and a high standard of living.

SUPPLY AND DEMAND

The economic rules of supply and demand  area always a crucial element when purchasing certainly real estate, especially waterfront and water access properties and signature golf course homes. At this point in time, the demand is very high. Demand may be even greater in the coming years than it is now, in popular states where baby boomers are planning their retirement.

HOW DO I BUY PRE-CONSTRUCTION PROPERTY

Reservation Agreements:

A reservation agreement is simply a "Right of First Refusal". As a buyer making a reservation,  you are under no obligation whatsoever.  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. 

To purchase this Right of First Refusal, you will place a reservation fee of anywhere from $10,000 to 10% of the proposed purchase price.
FYI: Many developers prefer to go directly to binding purchase agreement especially if all of the relevant paperwork and licenses are in place.

 Reservation Agreements are typically used when sales begin prior to having all permits in place, and prior to condominium document approval by the State Government.

When you decide to go ahead with the purchase agreement (binding contract), payment of the balance of the first 10% will be required. When purchasing a condo, you will then be granted a 15-day (calendar) recission period during which buyers may ask an attorney to review the contract and condominium documents to ensure that everything is in order. Once this recission period is over, buyers are committed to the purchase and any defaults will result in a loss of the deposit.

Typically when the building site groundwork is atarted, a second 10% deposit is required. From here on in the payments remains on hold until the development is complete and the property can move forward to closing in which case either a mortgage is arranged or the purchaser will pay the balance in cash funds.

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

SELLING EARLY - FOR INVESTORS
Selling prior to closing (flipping).

Assignment of the contract. 

The majority of developers now prohibit the assignment of contracts as they prefer to kow that the end user has the funds in-place to complete on the property.

  The second option is when builders will “resell” units once the entire development is sold out, however more and more developers are setting penalties on investors that wish to do this.