Benefits and Drawbacks to Buying New Construction18 Jul Johnny Devora
You’ve probably come across listings of properties that are still under construction. Maybe you’ve seen developer’s plans, or could visit a construction site or model at the developer’s office. But the place you’re buying is not yet built and you’re unable to see what could be your new home.
Is this something you want to risk as a first-time buyer? What are the benefits and drawbacks of buying pre-construction? Here are some things to think about:
1. Everything’s New and under warranty. If you’ve always dreamed of having brand-new carpeting, gleaming appliances, spotless fixtures and knowing that you’re the first to use them – this is your dream come true.
2. Customization. Often, if you buy early enough in the process, you’ll have some say in what type of layout you’ll get, what color pallet you choose and other available upgrades and selections. This can be quite satisfying, and something you won’t get if you buy a completed unit.
3. You May Get a Deal. Especially if you buy before the building has even broken ground, you can often get into a neighborhood cheaper than you would otherwise. This is in part because you’re buying off paper, rather than an actual physical building. Developers usually need to have sold a certain number of units pre-sold prior to obtaining construction financing.
4. Your Unit’s Value May Appreciate Quickly. If you reserve an three-bedroom unit at pre-construction pricing by the time the unit is actually ready to close, it will likely be worth quite a bit more, since pricing typically increases as the supply of units decrease. – which can turn out to be a great investment with a quick return.
1. Your earnest money Is tied up for an extended period of time. While you won’t necessarily be paying anything monthly until the unit is ready and ownership conveys, you’ll at the very least need to put down a reservation fee…
2. Timeline. If you’re looking to buy for the first time, you’re probably planning on sooner rather than later. If the building’s not yet built, or only halfway there, you’re looking at a timeline of months – so you have to plan far in advance.
3. You Need Others to Buy In. If you’re committed to a pre-construction, but no one else is, several things may happen: the project gets delayed, or you move into a building that’s half-empty until the other units are sold.
4. More Complex Buying Process. When buying a not-yet-completed condo, there’s a lot more that can go wrong, several steps in payment and a lot more trust required. Which, in practical terms, means there’s a lot more paperwork, so that all contingencies and maneuvers are drawn up and accounted for – which means that you’ll want your lawyer or real estate broker to be experts in this type of transaction.
5. (MINUS): Potential Delays. Even if a developer tells you a building will be ready six to eight months, if something goes wrong, for example a permit application could be denied, potential weather delays and construction is halted for a few weeks …then you can expect to have your closing date extended. Which means that you can’t have a hard deadline for when you move.
In the end, buying into a new development can turn into a fabulous deal, but caution is warranted. Anything that involves speculation, the possibility of sky-high profits, pre-paying is never guaranteed.
So, if you do decide to go pre-construction or mid-construction, find an agent who knows what they’re doing, verify everything the developer tells you and proceed carefully. If you do that, you’ll be ready to enjoy your new, well-constructed home that you got at a good price.