Guide to Buying Preconstruction Real Estate in Florida
Buying new construction property can be exciting. But it is helpful to know the process.
Step 1: The Reservation Contract
Developers will sign reservations with prospective buyers in the initial stages of a project to generate buzz and determine the level of public interest in a project. The developer will also be looking to provide comfort to construction lenders. Importantly, the reservation agreements are not binding with deposits customarily at 10% of the purchase price of the property.
On the upside, developers will offer reduced pricing at this stage (often) at below market prices and buyers may potentially select the unit of their choice. On the downside, the project is still in the early stages, so plans/specifications can change, or the project can be delayed/cancelled with refund to the buyers.
Step 2: Contract
After the relevant city/state approvals are secured, the developer will commence to full contract. The developer will provide the developer’s form contract and condominium documents to buyers and collect an additional deposit.
On the upside, the developers will (often) still be offering reduced pricing at this stage, and there will be more certainty surrounding the plans/specifications for the building. On the downside, buyers will have to pay a larger deposit, there will be fewer units available, and buyers will have only a 15-day rescission period to rescind the purchase.
Step 3: Construction
The developer will then commence construction of the project with installment payments linked to construction milestones (preferable) or dates (less desirable) with the balance on completion. Construction period will vary by the project and can take up to 2 years (or longer) depending on the scope of the project.
On the upside, pricing is often still below pricing at completion and the plans/finishing should be more well defined. On the downside, there will continue to be fewer units available as the developer sells out the development and you will be required to pay a significant amount of the purchase price in installments and prior to completion.
Step 4: The Closing
On completion of the project, the developer will issue buyers notice of this fact and a timetable to close on their respective unit. At closing, the buyer will pay the balance of the purchase price, check the unit for defects and take possession and ownership.
On the upside, buyers can (often) physically see the unit they are purchasing. There is also more certainty on a construction completion date. On the downside, prices will (likely) have risen and a buyer will have to choose from whatever units remain available.