A Basic Overview of Pre-Construction
Pre-construction opportunities are plentiful along the Emerald Coast.
Pre-construction is a great way to gain equity in a property prior to
and while it is being built. Pre-construction can be complicated and
there are several stages that occur in a Pre-construction project.
The information below relates primarily to condominium projects; however
the same equity build-up can occur when a person enters in to a new housing
development as well.
Reservation Agreement
Initially properties may be offered under a "Reservation Agreement".
The developer will provide PRELIMINARY site plans, floor plans, provisional
amenities, and initial pricing. The prospective buyer has the opportunity
to review all available information and may reserve a unit by placing a deposit.
The deposit may vary, from $5,000 to $10,000 but will depend on the prices of
the individual units. The Reservation money is placed in an Interest Bearing
Escrow account. The Reservation agreement is NOT usually binding and the buyer
can, at any time, cancel the contract and receive their deposit plus any applicable
interest.
Condominium Documents
Condominium Documents are provided when the developer completes them and receives
all appropriate approvals from the State. These documents describe the project
in more detail, and provide all standard features. There will also be information
about the condominium association, rules, and proposed management fees. Buyer's have
15 days from the receipt of the Condominium Documents to review the documents and
decide to move forward with the purchase or change their mind regarding the purchase.
Sales Contract
At this point, the buyer and seller enter into a binding Purchase
Contract, also referred to as a "Hard Contract". Generally
the buyer will need to provide additional funds, that with
their deposit, equals 20% of the purchase price. Some developers
will allow 10% of the down payment to be provided through
a "Letter of Credit". These details will be provided by the
developer.
Construction
Construction will begin once the developer meets the established level of sales. Typically
the developer has a working relationship with funding source(s) and must complete a minimum
number of Sales so that the construction loan will be approved.
Assignment of Contract
The developer may or may not allow assignment of the contract, and may require his/her consent
prior to assignment. Assignment is not automatic and will vary between developers. If it is
approved, the Purchaser may be allowed to "Assign" their interest in the Purchase Contract.
Depending upon demand for the property and appreciation that has occurred since the time of
reservation, an individual can make a substantial amount of money using only their down payment.
In essence, someone else is buying your contract from you. Of course, there are risks:
You may not be able to assign the contract, or there may not be a demand for the property.
It is very important to "research" the property, development, developer, and market conditions
while in the Reservation process.
Closing
At the time the building is completed a Certificate of Occupancy will be provided. Usually
closing will occur within a set number of days following the Certificate of Occupancy.
Contact Mike and Julie if you'd like additional information on this process.
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