Preconstruction Real Estate:

is a term that has been around for years, but until recently, has been a major trend in which buyers are able to purchase homes before they are built.

Developers, especially of large projects such as high-rises and communities, have to have a certain percentage of units under contract before receiving a construction loan from their bank. This is usually around 50 percent.

These units are usually offered in a variety of ways to the public:

• First the developer offers first choice to themselves and their family and friends.
• Sometimes a VIP brokers opening is offered to Realtors that the developer has done significant business with.
• Next is a public offering where the general public and Realtors are allowed to reserve units.

During this initial public offering, only blue prints, renderings and sometimes a model of a certain tier unit is available to have an idea of what will be built.

Homes can be reserved for a certain down payment, which can range from $1000-25 percent of the purchase price, depending on the developer. This is usually fully refundable if the buyer decides to back out within the alloted time period.

Once the reservation is taken, the buyer is able to review the sales contract with a lawyer for a given amount of days: 5-30 days is the norm.

During this time, the buyer can try to negotiate terms within the contract and submit changes to the developer.

If the buyer does not want to pursue the purchase, they will be able to back out at the end of the contract review period. If the buyer decides to proceed forward with the home, then a certain percentage down payment is due. This can range between 5-30 percent of the purchase price. Every developer has their own financing terms, but usually 5-10 percent down is required. A letter of credit, bank draft or promissory note can also be used in some cases in lieu of a cash deposit.

During this time, developers can raise prices from the first day of release to the public to the completion of the home. Prices generally rise by between 3-7 percent each phase. A good breakdown of each phase is:

• Initial Offering
• 50-75 percent sold of a certain tier
• 50 percent sold of entire development = Actual breaking of ground
• Completion of unit

The buyer's price should be locked in at the time of contract so that they gain the advantage of buying in the early stages. Another advantage for buyers is that commissions are paid by the developer, but at closing. For Realtors, that means not getting paid right away.

As the building nears completion, the unit owner is asked to determine the necessary options and upgrades desired for their unit. Appliances, cabinets, countertops, floors, etc. packages are located at the developer's sales center.

If a significant amount of upgrades are desired, usually a 50 percent deposit of the total cost might be required from the buyer.

A letter is then sent out to the potential owner within 3 months of closing to notify them when the expected closing date so that a loan can be secured.

If the owner fails to close on their unit, usually the developer will be able to keep the full deposit amount. If the owner secures financing, they will close on their new home.

Usually large high-rise project can take between 1-3 years. Usually 40-50 percent of the time is allotted for sales and another 50-60 percent for the construction.

Developers will sometimes have stipulations on selling or renting immediately after a home is completed.