Buying a condominium before it has been built can be a blessing or a curse. See to it that you get your queens condominium inspection prior to signing on the dotted line. It can also be an experience that falls somewhere in between. There are many pros and cons to consider, and there are also many things that will be beyond your control, but how your situation pans out will mostly be the result of your own research.
Let’s examine some of the important advantages and disadvantages of purchasing a pre-construction condo and list them in tandem with each other. Please read this over carefully if you are considering making such a purchase yourself. You should also realize that there are many more factors to consider and that no particular article can cover everything.
Let’s start with the biggest advantage of all: the price. Purchasing a pre-construction condo will allow you to lock down a below-market rate in most cases. This is the main reason you would find yourself buying something that does not yet exist. It is also the heart and soul of the sales pitch that somebody working on the developer’s behalf will throw at you.
This sales pitch was especially potent in the 1990s and earlier parts of this decade. The main problem with this logic nowadays is that the real estate market took a nosedive in 2008. In many cities, condominium buildings oversaturated the market and the prices dropped drastically. This turned out to be a great buying opportunity for people who were not locked into a pre-construction contract. It also turned into a serious regret for people who overpaid for their condos before the property crash while the real estate market was still pushing upward.
Another advantage of purchasing a pre-construction condominium from a condominium remodeling company is that you can get all sorts of upgrades at extremely reasonable prices. Say you want a surround sound system in your living room or granite countertops in your kitchen. You can specify this to the developer before your unit is built. These services will certainly cost you more than the base price, but they will cost you significantly less than if you wanted to remodel an already-existing condo. For instance, if you wanted to put granite countertops in a condo that you purchased in an existing building, you would need to pay somebody to remove the ones that you already have and then install the new ones. If your condo is being built for the first time, you cut out a huge percentage of these costs. Additionally, the contractor that will install these upgrades usually won’t gouge the price as much as a remodeler would do.
A second disadvantage of buying a pre-construction condo is that construction projects often do not finish on schedule. Sometimes they do, but those cases are more of an exception than a rule. The construction of a building is an extremely complicated endeavor that is almost impossible to appreciate if you have never worked in the industry. There are all sorts of contractors doing many different specialized tasks like waterproofing, installing dry wall, plumbing and so on. These subcontractors often unintentionally interfere with each other and cause delays. Aside from that, with the amount of subcontractors involved, the odds that all of them complete their tasks according to schedule are slim.
A third advantage to buying a condo pre-construction is that you’ve got some wiggle room. When you first decide that you would like to move forward with the purchase, you have to put down a deposit for what is known as the reservation agreement. This deposit is small but not insignificant–usually between five and ten thousand dollars. The good news is that this deposit is fully refundable. This is good news if you want to back out of the arrangement. If you become uncomfortable with the situation in any way, you can get your deposit back and make a purchase elsewhere or just sit on it and rent somewhere.
However, this freedom of action eventually wears off and that brings us to the third disadvantage. You will go through a few steps after you set up the reservation agreement and then you will sign a hard contract. At this point in time you will have to put down your full deposit, which ranges from 10% to 20% of the unit price, and you are locked in. This happens before your unit is ready to move in to. If the building runs significantly behind schedule or if it turns out differently than you were expecting, there is not a whole lot you can do without a bunch of legal maneuvers that you are not guaranteed to win.
Another advantage you have when purchasing a pre-construction condo is that the builder needs your support. This provides you with leverage that you might not otherwise have. In order to get approved for construction, the builder must sell a certain amount of the condominiums pre-construction. They almost always have to sell more than half of them. If you are aware of this situation, this might allow you to get an even better price than you would normally get on a pre-construction condo if you have good bargaining skills.
The other side of this advantage is that if you gain extra bargaining room with the builder, you need to ask yourself why. If the condominium renovation contractor has a solid track record, the units should sell themselves. If they are desperate enough to cut their rates in order to guarantee a sale to you, then perhaps you should be asking yourself why this is the case. It may turn out that there are other forces at work that have nothing to do with the builder or his reputation; if that is the case, then you should chalk the situation up as an advantage and do whatever you can to capitalize on it.
The first advantage that was discussed, price, can play into your hand very well if you purchase a pre-construction condo as an investment. The market normally goes upward in most places, although there are certainly geographic and chronological exceptions. If you are in an area that is generally appreciating, but is currently in a lull–like almost the entire nation is at this point in time–that means that you will likely be able to turn a profit but you will have to wait longer than you might like to. The disadvantage is that certain places can depreciate as time goes on. There are numerous examples of this, Detroit is a notable one. Generally speaking, purchasing a pre-construction condo as an investment is a sound decision, provided you have done your research. Some of the important things to research are listed below, although it should be noted that this is not a definitive guide.
At this point, it has probably become clear that all of the advantages of buying a pre-construction condo can be turned around and also presented as disadvantages. Both sides of each point are equally valid, which is why it is essential that you do a lot of your own research. This cannot be stressed enough.
Make sure that you are familiar with the area where you are considering your purchase. Evaluate the trends of the local real estate market. Talk to a realtor in the area if you can. It is also a good idea to look at other condo buildings in the area. If you can take a tour of some, perhaps under the guise of being an interested buyer, all the better. Compare the prices of existing condos to the one that you would pay for the unit about to be built and see how they match up against each other in terms of size and features.
There are other things to look into as well, some of them are not specific to buying a condo but are general rules of thumb for buying property anywhere. If you have children, make sure you check out the local schools. As trivial as it sounds, see how cell phone reception is in the area–there is nothing worse than not getting reception where you live. If there are other things important to you, take the time to evaluate how those interests of yours would play out in the new condo.
The most important thing to research is the builder’s previous track record. Talk to parties that have no stake in the matter. If there are other condominium buildings in the area that this builder has completed, talk to some of the residents and ask them if it was finished on time. This works better for recently-built buildings, as it would be more likely that the residents there are the original owners. It is also a good idea to research the track record of subcontractors involved in the construction of your building.
This might sound like a lot of research, and it is. However, buying property is an expensive undertaking. Buying a condominium pre-construction adds uncertainty and risk on top of expense. Buying property is a lot like buying stocks. Nothing is guaranteed. Your best bet is to prepare yourself as well as possible and then hope for the best. AND don’t forget that Queens condo inspection that you will be needing… Give Us A Call!!!
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