What You Should Know About Pre-Construction Contracts

The following are the most important elements that every investor/buyer should know regarding this type of contract:

They are Unilateral Contracts. The developer drafts the contract and sets all the rules. The purchaser isn't entitled to make any changes. This is also known as a contract of adhesion.

Rescission Period. The buyer has fifteen (15) calendar days starting from the date the contract was signed to terminate it (without penalty for the rescission or annulment) and declare it null. As a buyer, this is a right you have under the law of the State of Florida.

The Contract Isn’t Transferable. The property cannot be sold, nor transferred to a third party before the final construction and the execution of the deed, unless you have the developer's consent.

Timing of Payments. Most projects follow payment standards. These standards may be different in some developments.

• 10% when signing the contract

• 10% in the first 60 - 90 days after the first deposit

• 10% at the start of construction (also known as ground-breaking)

• 20% when half of the construction of the building is completed (for example, the 30th floor, when the building has 60 floors)

• 50% the day the property deed is executed (closing day)

No Financing Contingency. If the buyer requested a loan for the final payment of the project and it hasn't been granted at closing, and the buyer doesn't have the cash to close, the developer has the right to keep all the money that has already been delivered. In practice, however, the developer usually recommends different lenders to facilitate this process.

Breach of Contract. If the developer breaches the contract, he must notify the buyer(s) in writing and will have seven (7) days to deal with the infringement. The buyers have the right to claim their deposit, with interest, if the developer doesn't comply.

Closing Costs. The costs to be paid when signing the property deed on behalf of the buyer will vary, depending on whether its a cash or financed transaction.

In cash: 3% to 4% of the purchase price, which includes:

• 1.75% to 2% for the developer as developer fee

• Two (2) months' contribution to the condominium

• Documentary stamp tax on the transfer

• Owner's insurance policy (usually included in the developer fee above)

• Other transfer costs

Financed: Between 6% to 7% of the purchase price, which includes several or all of the following items:

• 1.75% to 2% for the developer as developer fee

• Two (2) months' contribution to the condominium

• Documentary stamp tax on the transfer

• Owner's insurance policy (usually included in the developer fee above)

• Registering and originating the mortgage

• Lender's commission

• Other transfer costs

Delivery Time. It may take from two to three years, if the purchase agreement is signed at the beginning of the project. The delivery time may be shorter, depending on the project's stage at the time of purchase.

Finishes. It's important to ensure delivery terms because they significantly influence the final investment. For example, the standard in South Florida is that projects are delivered “decorator ready,” meaning they're delivered without floors and paint.

The following are common standards for delivery of the units in South Florida:

• Equipped with appliances

• Equipped with kitchen cabinets

• Complete bathrooms with or without flooring

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