Do you remember the Panama City Beach condo market from 2003- 2006?
I do.
Buying a condo pre-construction offered a fantastic opportunity.
Some of us locked in pricing early then reaped the benefits of the developer, and the market itself, raising prices. You ended up closing on a condo with ten of thousands of dollars in equity.
Another group of us even sold the contract for a higher price, pocketing a hefty profit without ever closing the transaction. This process is commonly known as flipping a unit by utilizing an assignment of contract (more on this later.)
Condo pricing has surged since 2013 and developers are back at it. The first of a few new condo projects is under construction now.
Here are a few things to know about buying pre-construction:
1. Make Sure You Secure Phase I Pricing
Developers generally offer the best pricing early, so do your homework and be ready to commit as early as possible.
Often, the first part of the process isn't even a full contract but a soft reservation that can be canceled at any time. If you are thinking of buying but maybe not quite sure, get your name on a reservation to secure the right unit at a good price.
Developers also like to control supply and may not even offer all the units at the beginning. This control allows them to raise prices at the next offering, the next and the next. By locking your price in early, you can enjoy the benefit of the developer pushing prices.
2. Understand The Process
Securing a unit is typically a four-step process in pre-construction.- First, there is usually a reservation agreement. Like it sounds, you are reserving the rights to buy a specific unit at a specific price, usually for a nominal, refundable fee. To land the best unit and pricing, you need to execute this as fast as possible. The developers will generally accept these on a first come first serve basis so act fast here!
- Second, comes the actual contract. The developer will deliver the actual purchase agreement to anyone that holds a reservation. You will have time to review the paperwork and understand all of the terms involved in the purchase.
- Third, you wait. Construction typically takes 18-24 months, so this is where you can really do well. If the developer continues to increase prices and the overall market continues to surge, your value goes up and up.
- Finally, once construction is complete and the building has passed all inspections, it is time to close and actually purchase the unit, just like on a regular resale.
3. Understand Your Rights To Cancel
Florida Statutes section 718.503 (1) reads that a contract for the sale of a residential condominium unit by a developer must include language giving the buyer a right to cancel within 15 days from the time that the buyer is provided with pertinent condominium documents. The 15 day period is meant to give the buyer a chance to review all of the documents, including the declaration of condominium, budget, and rules and regulations.In short, if you are buying a condominium unit from a developer, you may cancel a contract within the 15 day rescission period.
Here are a few more positives and negatives to consider when buying pre-construction:
When you finally close, everything about the condo will be new. Your unit, the elevators, plumbing, electrical, swimming pools, etc. will all be brand spanking new.
If you want a condo now, pre-construction is NOT for you. Depending on when you contract, it could be anywhere from a few months to almost two years before you can actually own and use your new condo.
If you purchase early enough, you can lock in low pricing. If the developer has multiple price increases and the market continues to surge, you could end up closing on something that is much more valuable than when you committed to buying it. If you want, you might even be able to sell the contract before closing and make a handsome profit before ever owning the condo. In other words, the condo you agreed to pay $300,000 for could be worth $375,000 at closing, or more.
You will be required to fork over a deposit when you sign a contract. You hand over your money for something you can't even use yet and of course is no longer in your control. If you see this as part of the investment, great. If not, pre-construction is not for you.
Ask anyone who was involved in pre-construction in the early 2000's, in Panama City Beach, how it went for them, and you could hear such exciting stories about buying in early. Register for updates on the PCB Calypso Tower III Pre-Construction to stay up to date on the building progress.
