How Do the Stages Affect the Price?
Properties in pre-construction go through different stages. As construction progresses, prices tend to increase along with the required deposits. However, not all developments follow the same structure, and many offer incentives or attractions during different construction stages.
1st Stage: Known as Reservation Stage, where the intention is to acquire a "style" of unit within a "price range" and is reserved with only 10%.
2nd Stage: Also known as the Contract Stage, here a specific unit is reserved with a specific price. With the signing of this contract and a deposit equivalent to 20%, the 15-day cancellation period begins.
3rd Stage: This is the Ground Breaking Stage where construction begins, and another deposit is required.
4th Stage: This usually occurs when the building reaches halfway completion (exterior only) and is called the Mid-Construction Stage.
5th Stage: This occurs when the last floor of the building is completed (exterior only) and is known as Top-Out Stage.
6th Stage: This is the final stage which is called Closing Stage where the transaction is officially closed.
Terms You Should Know Before Buying Pre-Construction
1.- Unilateral Contract
The Developer drafts the contract and sets all the rules; the buyer has no right to make any changes.
2.- Cancellation Period
During this period (15 days from the signing of the contract), the buyer has the right (according to the Florida law) to cancel the contract without any penalty if they disagree with any of its clauses.
3.- Non-Transferable
The contract is made in the buyer's name or in the name of a company where the buyer is 100% the owner. The property cannot be sold or transferred to a third party before the construction is completed and the deed is executed unless the Developer consents.
4.- Payment Methods
Most projects follow a standard payment schedule, which may vary between developments:
-
- 10% at the signing of the contract
- 10% between 60-90 days after the first deposit
- 10% at the start of construction
- 20% at the midpoint of the building's construction (floor 30 if it has 60 floors)
- 50% on the day of the property deed (closing day)
5.- Non-Contingent Financing
If the buyer applied for a loan for the final payment of the project and it is not granted at the time of closing, and the buyer does not have the cash, the developer has the right to keep the total amount of money given to date. In practice, the Developer suggests different lenders to facilitate this process.
6.- Developer’s Breach of Contract
If the Developer breaches the contract, they must notify the buyers in writing, having a period of 7 days to resolve it. If not resolved, the buyers are entitled to claim their deposit with interest.
7.- Delivery Time
It can be 2 to 3 years if the purchase contract is signed at the start of the project. This time can be shorter depending on the stage of the project at the time of purchase. The finishes with which the units are delivered also influence the delivery time.
8.- Finishes
It is important to ensure the delivery conditions, as this significantly influences the final investment. However, the standard in South Florida is that projects are delivered as follows:
-
- "Decorator ready," meaning delivered without floors and without paint.
- Equipped with appliances
- Equipped with kitchen cabinets
- Complete bathrooms with and without floors
How to Estimate Closing Costs When Buying Pre-Construction?
The expenses to be paid at the time of the property deed vary if the transaction is cash or financed:
-
- Cash between 3% and 4% of the purchase price:
- Developer’s Fee 1.75% to 2%
- Two months contribution to the condominium
- Transfer documentation stamps
- Owner's insurance policy title
- Other transfer costs
- Financed between 6% and 7% of the purchase price:
- Developer’s Fee 1.75% to 2%
- Two months contribution to the condominium
- Transfer documentation stamps
- Owner's insurance policy title
- Mortgage registration and issuance
- Lender's commission
- Other transfer costs
- Cash between 3% and 4% of the purchase price:
Frequently Asked Questions
- What is a pre-construction contract? A pre-construction contract is an agreement signed between the buyer and the developer before the construction of a property begins. It sets the terms of the purchase, including the price, payments, and delivery terms.
- When should I cancel a pre-construction contract? The cancellation period is 15 days from the signing of the contract. During this time, if you disagree with any of the clauses, you can cancel the contract without any penalty.
- Is it possible to transfer a pre-construction contract to another person? A pre-construction contract generally cannot be transferred to a third party before the construction is completed and the property deed is executed unless you have the Developer's consent.
- How is payment made in a pre-construction contract? Payment is usually distributed in several stages, from the signing of the contract to the completion of construction. The exact terms can vary between different projects and developers.
- How is the property delivered upon completion of construction? The delivery terms can vary, but generally, the property is delivered "decorator ready," meaning it does not have floors or paint. Appliances and kitchen cabinets are usually included, and bathrooms are typically complete, with or without floors.
Enrique Vicente Urdaneta
Real Estate Advisor | eXp Realty | EVU Luxury Homes
305.209.6418
www.instagram.com/evuluxuryhomes
Disclaimer: The information presented in this article is intended to provide a general understanding of the topic. However, please note that I am a real estate agent, not a lawyer, accountant, tax, or financial advisor. This content should not be taken as legal, tax, accounting, or financial advice. The laws and regulations related to this topic can be complex and may change or expand in the future. Therefore, it is crucial to consult with a qualified professional, such as a specialized financial or tax advisor, before making any decision based on this information. As a real estate agent, I can provide various options and professional guidance related to the real estate aspects of your investment strategy, and for matters related to tax implications, legal issues, and financial planning, please consult with the appropriate professionals, which whom I have allies I can refer.
