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Preconstruction buying has advantages for buyers and builders, because it allows people to buy property at a locked-in price.  This helps developers and builders because it promotes sales.  All you have to do to take part is to make an investment of as little as five percent of the purchase price, and make payments as the work is completed.  Buyers can make a deal on a property with little startup cost, and end up paying less for the finished product, while builders can sell an entire development before they even lay the foundation.

The process starts when the builder or developer puts the building plans up for prospective buyers to examine.  Usually, interested parties get a look at the architect’s rendering, and floor plans for homes and condos.  Preconstruction prices are generally much lower than the price of a completed unit.  Theoretically, buyers get the disocunt because they are willing to take a chance by investing in something that doesn’t exist yet, but they are also a very important part of the construction process because their purchases help make it much easier for builders to secure funding for the project.

If you happen to be interested in preconstruction sales, check the classifieds in your local newspaper or on the Web, or talk to a realtor to see what’s for sale in your area.  Examine each offer, and make a list of those that suit your needs and your price range.  Investigate the developer’s track record, and steer clear of those who have more than a few complaints.  You should also find out what similar units are going for in the surrounding area, and what developments may be built in the future (especially important for those buying waterfront property, as future buildings may mar the beautiful view you’ve just paid for).

After you’ve reassured yourself of the integrity of the builder and the location and price of the property, you can go ahead and put down your first payment.  Most pre-sale properties charge a 5-10% reservation fee, with some being as low as $1000.  Your money is held in escrow, and you can terminate the agreement at any time.  Keep in mind, nothing is set in stone yet, and the developer can raise the price at will.

When the builder gets all the permits that they need, and the legal right to sell, you and they can sign an official contract.  At that time, a payment of up to 20% of the full purchase price is due.  You can choose to pay the builder directly, or obtain a letter of credit.  After the papers are signed, no more money has to change hands until you’re ready to move in.  Be careful when signing, because in most states the contract legally binds you to buy the unit, or risk losing your deposit.  States like Florida offer a fifteen-day period in which you can withdraw from the agreement without penalty.  To be safe, run the deal by a qualified attorney.

Construction can last anywhere from six months to two years, and the contract typically has an expiration date.  If the builder isn’t done with the unit by then, you are entitled to a refund and aren’t obligated to buy the property.  During the construction, the price may or may not increase.  If you choose, you can find another buyer for the property and keep any profits.  Closing works much like it does in any other real estate transaction, and you’ll have to pay any and all fees that are due.

Preconstruction buying is a great deal most of the time, but there are things that must be considered.  Learn what you should and shouldn’t do, and if you think you are getting in over your head, consult with a real-estate lawyer to protect your interests.  We hope this article has given you a little more knowledge of the preconstruction process.