One of the hottest areas of Florida real estate is the preconstruction and new construction markets. Developers across the state are building at a fantastic rate.  In order to qualify for the various stages of their construction financing, many developers offer discounts to early buyers.  These discounts often result in better-than-average appreciation for buyers and investors.

Overview (hypothetical example):

• ABC Development is preparing to build a 20-story highrise with each unit expected to sell for $500,000 at completion.
• ABC's Bank requires them to sell 50 units prior to the release of their first construction loan installment.
• ABC may discount initial unit purchases at 20% off the expected price in an effort to receive their first construction loan installment and commence construction.  
• In an effort to continue as scheduled, ABC may discount the second group of 50 units at 15% and so on until the building is completed.
• As each unit is sold, the developer is under less pressure to discount their pricing as units usually sell faster than the building can be completed.
• Of course, once the building is completed and owners close on their prospective units, they can immediately sell them with a guaranteed profit equal to or greater than their original discount.

The Basic Process

• The developer announces that pre-sales begin on a particular date at a particular price range.
• Investors typically 'reserve' their spots in line by placing a $10,000 - $25,000 earnest money deposit in escrow.
• Investors then have a 15-day right of recision to cancel the contract without penalty.
• After the 15th day, the investor is usually required to increase their deposit to an amount equal to 10% of the value of their prospective unit.
• Investors are usually required to escrow an additional 10% once construction begins or within 6-8 months.
• The investor may finance the remaining 80% at closing (up to 3 years later).
• Depending on the developer, investors may be able to sell their contracts prior to actually taking possession of the unit, realizing potential gains before the building is actually complete.
• Other developers require investors to actually close on the unit prior to reselling.

Frequently Asked Questions About Pre-Construction Sales

There are four easy Steps to Buying Pre-construction Property