What is a pre-construction reservation?
and why it is a discounted price per unit?
Developers sell pre-construction, even at the lower prices, because they must have pre-sales to get their construction loan. Lenders usually require 80% of a project to be sold before construction can begin. Pre-construction Prices are generally lower than those of existing condominium resales.
The prices are discounted to give buyers the incentive to buy something they can't see, that is still a project on paper. Discounts make the difference. By the time the project is built usually there is a substantial equity already on the property and the investments and patience finally pays back. This also allows buyers to acquire a unit that normally would cost much more on a regular market, at a very discounted price.
Four Phases of Pre-construction Sales:
1) Reservation Agreement--The developer has preliminary plans for the project that are subject to change and buyers can make "intent to buy" reservations with a deposit of $5,000, entering a Priority List of Buyers. The deposit is held in escrow with a title company and is fully refundable should the Buyer decide to cancel your reservation. The Reservation Period is typically 6 months, or until sold out. There is no risk. As soon as the final plans becomes available, Buyers will be invited to review floor plans, and choose their preferred unit, according to their reservation number.
2) Right-of-Rescission Period (15days)--Once the developer is ready to proceed with the project he will deliver state-approved Condominium Documents, final pre-construction prices, final floor plans and an hard contract. Buyers will have 15 days to review the documents and either choose to commit (Hard Contract) to the unit(s) they reserved or they may request all their reservation fees be refunded. The Right of Rescission Period is 15 days.
3) Contract for Sale-- When a Buyer choose to commit to the unit(s) he reserved then he will complete the documents provided during the Right of Rescission Period. At this point he provides the balance of earnest money (20% of the purchase price). This balance is minus his initial reservation deposit.
4) Closing--The condominium is completed and a Certificate of Occupancy is issued. The buyer performs a walk-through inspection and goes to closing. By then the Buyer have made arrangements for the balance either by securing a mortgage or by providing cash. This is the happy day when the buyer gets to move in!
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