Need Not Be Built?

    Need Not Be Built?

    I met my husband while I was working for an advertising company. He was one of my clients, and he decided to buy an ad for his pre-construction condominium building. I’m pretty sure he bought the ad to get up the nerve to ask me out, but hey, whatever gets the sale, right? Anyway, when he sent me the add copy for the building, Renaissance (he was so proud of that name), he had written “Need Not Be Built” at the bottom. What the heck did that mean, I wondered at the time? Well, pre-construction can be tricky, but if you understand the ins and outs, it can be a great opportunity.

    Pre-construction is the opportunity to join a group of investors in an effort to finance the development of a real estate project. This is typically a condominium project. Basically it is purchasing a condominium before it’s built. There are many benefits to participating in a pre-construction project. First of all, the developer typically will give discounts and/ or incentives to get the building presold. Secondly, the buyer is able to leverage his position as an owner without any significant expense during the construction process. Also, during an average economy, the units can appreciate significantly, so the investor is buying at today’s prices and should have instant equity, once the project is completed.

    There are two phases in the pre-construction process: the reservation phase and the hard contract phase. The reservation phase is a non-binding agreement for either party. In other words, the developer or the purchaser can back out of the reservation at any time. This allows the developer to determine the feasibility of the project, and allows the purchaser to decide if they want to move forward. Once 70-80% of the units are reserved, the buyer and developer will be required to sign a binding contract, also known as a hard contract. At this time, the buyer will be required to deposit 25-35% of the purchase price with the developer’s escrow agent. The buyer’s deposit then becomes non-refundable.

    As you can see, getting into the pre-construction game can be a great opportunity. The fabulous folks at the Henry Group can answer all of your questions, and help you with this process. Please feel free to call us anytime!

    Written By Helen Henry

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