Presale Process
This
article focuses on the pre-construction presale
process. The presale process is composed of
four distinct phases - Reservation, Examination/Contract,
Construction and Closing.
Reservation
The Reservation phase is the first offering
to the public. Developers will provide preliminary
renderings, floor plans and prices of the project.
In Seattle, many high-end developers will host
a presentation event. During the reservation
phase buyers can make a reservation to purchase
a unit at a significantly discounted price.
A deposit will be required at the time of reservation,
which can range between $10,000 to 10% of the
purchase price. The Reservation phase is necessary
for the project developer. In order to obtain
financing, the developer must show there is
a demand for the project. The reservation is
revocable; therefore, there is little risk,
though it is important to check the requirements
of each development.
Examination
& Contract
During the Examination & Contract phase the
developer will provide the buyer an opportunity
to review the public offering statement & contracts.
The public offering statement includes final
renderings, floor plans, by-laws, covenants,
restrictions, budget, etc. Generally, the buyer
will have a specific number of days to review
the information in order to decide whether to
purchase or not. If the buyer chooses not to
purchase, their reservation deposit will be
fully refunded. If the buyer chooses to move
forward and purchase the unit, the reservation
will convert to a purchase and sale contract.
An earnest money deposit will be required which
may range between 1% to 10%, though requirements
will vary by development.
Construction
Once the developer has sold enough units, they
will move forward to construction of the project.
Construction can range from 1 to 2 years depending
on the size and scope of the project. Typically,
prices rise and units sold during the construction
phase are higher than the pre-construction price.
By the time the project is complete, buyers
may realize an appreciation in value. Any appreciation
is dependent on market conditions at the time
of completion.
Closing
The final stage is closing. Closing on a pre-sale
is similar to the closing of any other real
estate transaction. The buyer will have a walk-through
inspection, provide the remainder of the down
payment, the loan will be funded and escrow
documents will be signed. Many developers may
provide financing options through third parties
(e.g. banks) providing long-term rate locks.
However, buyers are responsible for obtaining
their own financing, whether utilizing the developer’s
recommended lender or your own lender.
