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What is Preconstruction
Essentially buying into a pre-construction development usually condominium before construction has begun. The primary advantage is that build out time ranges anywhere from 12 -24 months or even several years and this gives buyers huge potential benefits with rising appreciation. The initial condominium units are offered at a lower price than if one buys when construction is complete; this is because developers need pre-construction sales to garner a construction loan from a lender.
Steps to the Process
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A percentage of the purchase price usually 10 - 20% is required initally to enter into a real estate purchase contract with the developer.
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The condominium documents which include budgets, association rules and bylaws, unit descriptions etc. once approved by the state are sent to buyers for review. Some states including Florida (which is 15 days) allow a specified time to cancel contract with developer and receive a full refund. This is termed The Right of Recission.
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If terms are acceptable the contract becomes binding with an obligation to close when certificate of occupancy is obtained. Then the balance of the purchase price is remanded and closing documents are finalized. Some developers will allow purchasers to assign a contract to a new buyer before closing. This is also known as Flipping and generally the developer will control the process from their end so as to not undercut the pricing of remaining inventory.
People who are successful in the preconstruction sales market have gained thousands of dollars in market value by the time they are ready to close. However because one is in essence buying on paper from floor plans and artist's renderings options like finishes or even square footage of the actual unit can be different than what was stated in the offering.
Gone are the days when people camped out in front of preconstruction sales centers for a day or more just to get a chance at first tier pricing on pre-construction developments. Pre-construction sales are moving much more slowly in once hot markets nationwide. Some projects are in danger of canceling altogether because of insufficient pre-sales. It is generally agreed that the mindset of developers has changed over time. Oftentimes this can be seen in the incentives being offered to entice new buyers - thought by many to push prices downward over the long term.
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