Purchasing a Pre-Construction Condo

Be careful when you buy a home that's not built yet, there can be unforeseen setbacks before you move in.

When you buy a pre-construction unit you are putting money down on a home before construction begins. This could be a great opportunity, but you should proceed with caution because you are buying something that doesn't exist yet. By understanding the risks and planning, you can avoid complications and come out a winner.

The main advantage to buying a condo before construction is that you often get a lower price than if it were complete. The developers usually need 50-90 percent of sales of the units before they can borrow funds to begin construction. They also get you in on the ground floor of an investment that will appreciate. The value of pre construction units generally increase during one to three years it takes to build the development, so your unit may be worth more than you've paid for it before you set foot in the place. You can usually customize your home by choosing from flooring and finishes.

The first step to buying a pre constructed condo is the reservation agreement. You usually give a deposit to reserve the unit and set the price. The deposit is held in escrow and you can cancel the agreement at any time with a full refund.

Once the development is approved the developer submits condominium documents (including budgets, association rules, unit descriptions, materials and other important information) for approval by the state. When they are approved they are sent to you for review. Read them carefully and make sure you are comfortable with the association rules.

Once you receive the documents you have a period of time to decide if you would like to proceed into the binding contract. If you don't want to, you can exercise your right of rescission and withdraw with a full refund.

If you don't withdraw, then you will provide the balance of the down payment and sign a binding contract agreeing to purchase the condo. You usually have seven days after that to cancel. This is your last chance to walk away with no penalty.

When the construction is nearly finished, the developer will get the Certificate of Occupancy on your behalf. A closing date is set and you will hand over the balance of the purchase price and sign the final documents. If everything goes well your closing will coincide with your move in date and you will be ready to enjoy your new home.

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