Buying a condo unit during the preconstruction phase might seem to be a straightforward proposition. The future team is purchased from the architectural drawings at the developer’s sales site. However, in real life, buying a unit before it’s constructed may work out to be anything but straightforward.
Developers often redesign the layout of units as they go as a result of necessary changes during construction. Moreover, they draft the purchase contracts to their advantage. For example, suppose they are late in completing the complex. In that case, the purchaser is forced to agree to delays or to occupy the unit while the complex is still awaiting occupancy permits of units that may still be under construction.
Unwary buyers could also become victims of developers who sell the units in the early stages where they still possess more than 51 percent of the condo project. Over time, developers may become unable to sell the rest of the units.
A condominium unable to attract new buyers may experience a rapid decline in the value of its units. Upon realizing there was no longer demand for their units, developers may resort to renting out the unsold units, bringing down the overall unit values.
Buyers are well-advised to consult a knowledgeable lawyer and insert their conditions into purchase contracts. By specifying a fixed completion date, buyers can position themselves to get their deposits back should the developer miscalculate the timing of completion. The buyer should determine the timing of completion. I strongly suggest yet another contingency where the proceeds from the unit’s sale and its deed are kept in escrow by the developer’s lawyer until the developer sells at least 51 percent of the teams to individual unit buyers.
Until such time, the unit buyer should be paying occupancy fees to developers, equivalent to the monthly maintenance fees plus the anticipating monthly mortgage payment. Such arrangement would provide that after the expiration of a specific time, buyers would be entitled to a refund on their deposits and sale proceeds, in cases when complexes weren’t finished on time, or respectfully, where 51 percent of the complex isn’t sold to the other unit holders. Such an arrangement would help protect the values of the already sold units. Shy away from any purchase in which the developer isn’t willing to accept your conditions. Otherwise, you may be putting yourself at the developer’s mercy.
Another thing to keep in mind is condominium maintenance fees. They are guaranteed only for the first year of operation from when unit owners take control of the complex. Developers often calculate their initial budget on the low end to make condo units more appealing to buyers.
Almost as a rule, in the second and third years, after most unit owners assume the control of the complex from the developer, unit owners get hit with considerably higher monthly maintenance fees to cover the developer’s cost overruns. Buyers should consider and expect that there will be an increase in maintenance fees from the first year onward following the completion of a new condominium.
- Watch out for contracts that force you to buy the condo unit even if the construction of the whole complex is delayed.
- When buying during preconstruction, count on higher maintenance fees than initially calculated by the developer.
- Check the reputation and track record of the developer and builder before buying.