Services/Solutions

BUYING AT PRE-CONSTRUCTION PRICE

When a developer plans a new project regardless of scope there are numerous stages that must be strategically planned prior to the beginning of the sales cycle. Firstly and most important is financial.  Is the project economically feasible to build and is it priced to the correct audience.  Whether the developer is a publicly traded company or a local contractor, their financing partners measure 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, the lending parties are excited about funding the construction and moving forward. Adequate interest typically equates to a pre-sale of 60% to 80%. 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" prices will be lower than the price for subsequent purchasers (assuming strong opening sales and adequate Buyer interest). In some cases, developers offer additional incentives when the opening bell rings such as an extra parking space or flooring allowance. As the project progresses through the sales process, interest by end-users traditionally increases as does pricing. Again past performance does not guarantee future performance.

ONGOING APPRECIATION

Many projects are developed in phases, especially condo towers. When developers have multiple towers generally the first tower is priced lower then any subsequent ones. This is a result of increased construction costs and added amenities to a project.

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. Currently, demand in South Florida Real Estate is at an all time high. In many cases the supply is dictated by local municipalities- as they set limits on the number of allowable unitsto be built in any given area.  According to some analysts, over the next eight years, the baby boomer flood will start to peak. Demand may be even greater than current levels. Note that according to the US census, in 2005 an average of 1,050 people per day move into the state of Florida.

LIMITED UPFRONT CARRYING COSTS

Reservation Agreements: A reservation is nothing more than a Right of First Refusal. As a reservation holder a buyer is under no obligation to purchase the unit. For this option, a buyer will typically exchange a reservation fee of anywhere from $10,000 to 10% of the proposed purchase price for the place in line. When the developer is ready to sell the units and sign contracts, a buyer may elect to move forward with a purchase contract or cancel with no obligation. During the reservation phase a buyer has nothing to lose.

Generally developers prefer to go directly to a binding purchase agreement.  As this process guarantees a higher conversion rate to close then simply holding a place in line.   The buyer would have a unit price and number and following the 15-day rescission period would be locked in to close on the unit.

Moving forward with the purchase agreement payment of the balance of the first 10% will be required (although this will vary from Developer to Developer). 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. This law can be found UNDER SECTION 719.503, FLORIDA STATUTES. Once the rescission period is over, buyers are committed and any defaults will result in a forfeiture of the deposit.  (Once the 15-day rescission period has expired the contract becomes binding€ or €œhard€).

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.  Once the building is complete the balance of the purchase price will be due at closing either in the form of cash or mortgage.  Although there is 20% down the Buyer may elect to finance a greater amount. 

SELLING EARLY

There are three options of selling the unit prior to closing.

1. 1) Assignment of contract. The majority of developers prohibit assignment of contracts. Although some developers may allow it; it is typically not the norm.
2. 2) Developer Resells:  This occurs when a developer offers an in-house resell program to holders of executed purchase and sale agreements.  This happens for generally due to strong demand.
   This is accomplished with the assistance of the developer and the in-house sales team.  The units are made available to the public at the current 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. (To learn more about the costs associated with different developments contact a Chariff Realty Group €œAgent on Call„¢€). Buyers may also obtain the services of a real estate company such as Chariff Realty Group to promote their unit, though as a rule, MLS listing prior to closing is typically prohibited by developer and could result in forfeiture of deposits.
3. 3) 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.  All parties must be at the closing table and ready to go without the slightest of impediments. To ascertain availability and costs for either of these programs, consult a Chariff Realty Group "Agent on Call."