Q. Why do developers sell pre-construction rather than build first?

A. Developers sell pre-construction, even at the lower prices because they usually need pre-sales in order to secure their construction loan. Letters may require that 50%-80% of a project be sold before construction can begin.

Planning and patience pay off when buying pre-construction property. You need to plan so that you have the necessary funds when it comes time to convert. And, you need patience waiting for the documents to be delivered and for the condo to be built.

There are four phases to pre-construction:

1. Reservation Agreement
2. Right of Rescission Period (15 days)
3. Contract for Sale
4. Closing the Sale

1. Reservation Agreement:

The developer has preliminary floorplans, site plans, amenities and prices. ALL are subject to change. Buyers reserve units with a nominal "intent to buy" deposit- usually 5% or less of the purchase price. The deposit is made to an interest bearing bank trust account. It does not go to the developer. Buyers can get their money back at any time. There is no risk.

2. Right of Rescission Period:

Also called the "document examination" period. Developer will deliver the state- approved Condominium Documents. The "condo-docs" contain the final, exact details of the project including the site plan, floor plans, amenities, rules, by-laws, budget, etc. The buyers then have 15 days to decide whether to go ahead with the purchase or to get their money back.

3. Contract for Sale:

Buyers put up the balance of the required earnest money: usually 20% of the contract price. The contract then becomes binding on both parties. Not all of the reservation agreements will convert to a contract for sale. There are always a few people who fail to plan and are caught short of funds. If enough of them convert, the developer gets the construction loan. If the developer comes up short on conversions, he or she will have to obtain more sales before construction can begin.

4. Closing the Sale:

The condominium is completed and a Certificate of Occupancy is issued. The buyer(s) does a walk-through inspection and then goes to closing where they put up the balance of the purchase price plus closing, costs. This is the happy day when they finally get to move in.