How does Florida law protects the buyer of a preconstruction condo?
In Florida, buyers have a fifteen (15) day rescission period starting with their receipt of the Public Offering Statement, which includes the condominium documents, association by-laws, preconstruction purchase contract and escrow agreement; to review and complete or rescind any condominium purchase and escrow agreement and receive a full refund of their deposit if they rescind.
The most important protection under Florida law is that your deposit is held in an secure escrow account. These funds will be not released until the closing of your unit unless the developer designates a portion of the deposits may be used for construction in the contract.
Why are preconstruction sales necessary?
Most developers are required by their lenders to pre-sell a certain percentage of their projects before the bank or lender will lend them the funds for construction. This is the risk (and the opportunity) when buying a preconstruction condo unit. If for some reason the developer decides not to build the project then your deposit money has not been appreciating. Preselling condos has become a standard practice. Once the required presale percentages have been reached and construction has begun, your risk is greatly reduced.
Why buy a preconstruction when I can buy a condo which is available now?
By purchasing at pre-sale you are able to leverage your down payment and control 100% of an appreciating asset with a small 20% investment. Many people have purchased preconstruction condos and have sold their units for a profit even before the building is 100% completed.
What size to select and on which floor should I buy?
If you are expecting to close and live in the residence then you should select the view and floor height that will appreciate most over time as well as one that you will enjoy living in. The higher floor with unobstructed views are the best and most valuable. If, however, you plan to lease the condo to a tenant, you will want one that appeals to the greatest number of potential tenants. This can also depend on the area your purchase is located. If you are in an urban environment, a one bedroom for single tenants may be best; in a resort area, a condo-hotel unit with a management program may work for you. In a suburban neighborhood, two bedrooms are often better because they attract couples without children, single parents with a child or singles with a roommate. If you plan to sell your condo purchase for a profit as quickly as possible then the least expensive unit on the lowest floor (typically studios and 1 bedrooms) have shown the highest percentage of return based on previous condominium resale statistics.
What are the deposits for preconstruction condos?
With most preconstruction condos you will be required to deposit twenty (20) percent by the time the developer “breaks ground”. Typically, there is an initial reservation fee, then the remainder of the first ten (10) percent at the time of contract. The final ten (10) percent is required when the developer breaks ground.
Can I sell my preconstruction condo before it’s completed?
Yes, You must have written permission from the developer. 1. You may sell your right to the condominium unit by transferring or assigning the contract to a subsequent purchaser. 2. You may sell your unit under a real estate contract upon completion of the condominium. Two real estate closings will occur simultaneously, your purchase, and the sale to your buyer.
Who may resell my condo?
You have two options in most cases: 1. The developer may resell the unit for you. 2. Your REALTOR® may find a buyer for you. In either case there will be a real estate commission but this choice is solely up to you only
What are the advantages of having a relationship with a Realtor when purchasing Florida preconstruction projects?
A professional FLORIDA REALTOR® will:
- Alert you about new preconstruction projects before they are made public
- Help you compare the pricing in similar buildings in the neighborhood
- Inform you about community infrastructure developments such as service retail and civic investment that may affect the future value of your property
- Help you negotiate the terms of the contract and advise you on alternative choices that may meet your needs
- Share information regarding the relative financial strength and track record of a developer with you
Finally, since all realty fees are paid by the developer, you are getting the services of the FLORIDA REALTOR® at NO cost to the buyer! For more information call New Florida Beach Homes Team today: (786) 908-3715
The main benefit of investing in preconstruction condo projects is that it offers the buyer the ability to leverage a large assets with a relatively small amount of money (typically 10 – 20%) and enjoy the real estate appreciation of the property over time without the carrying costs, such as interest and taxes. Each preconstruction condo project proceeds through 4 different stages:
Stage 1: Reservation
In this stage, the developer is offering the units at the lowest ground breaking price. These prices are always below the market price and give the developer the chance to test the real demand for the project, helping the financing process that they face with their current lenders. The buyer will find the great chance to “reserve” the selected unit with a deposit of 10-20% of the unit value, with a “reservation agreement”. This money is fully refundable.
Stage 2: Contract
Once the developer reaches the point of the required number of reservation agreements, they create the “hard-contracts” with the “condominium-documents” specifying in detail all the legal and technical specifications of the development. This stage is usually reached between 1 – 3 months after the “reservation agreement”.
Stage 3: Construction
When the construction of the project begins or the construction “breaks ground”, a second deposit usually of 10-20% is required. The construction may take between 18 months to 2 years to complete. Another 10-20% may be required when construction reaches level where buyer’s property is or when roof of the building is fully complete.
Stage 4: Closing
Once the development is completed (18 months – 2 years later), buyer completes the transaction by “closing” the unit. At this point, the remaining balance will be required, and the mortgage or the cash payoff will have to be available, along with the closing costs and all the typical expenses related to a Florida real estate transaction.