What You Need To Know About New Construction Agreements


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

 

1. 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.

 

2. Rescission Period. The buyer has anywhere from three (3) calendar days for single family homes to 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 for a condo. In Florida, this is a right prescribed by the law .

 

3. 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.

 

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

 ·     10% when signing the contract  (nothing more for single family homes typically except additional deposits on options/extras)

·      10% in the first 60 - 90 days after the first deposit on condos

·      10% at the start of construction on condos

·      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)

 

5. 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, 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.

 

6. Breach of Contract. If the developer breaches the contract, they 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.

 

7. Closing Costs. The costs to be paid when signing the property deed on behalf of the buyer will vary, depending on whether it’s a cash transaction or involves financing.

 

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

o   1.75% to 2% for the developer

o   Or two (2) months' contribution to the condominium

o   Or documentary stamps on the transfer

o   Or the owner's insurance policy

o   Or other transfer costs

o   Capital Contributions to HOA or other initiation fees

o   Prepaid taxes and Insurance

 

·      Financed:  Between 6% to 7% of the purchase price, which includes:

 

o   1.75% to 2% for the developer

o   Or two (2) months' contribution to the condominium

o   Or documentary stamps on the transfer

o   Or the owner's insurance policy

o   Or registering and originating the mortgage

o   Or the lender's commission

o   Or other transfer costs

o   Capital contributions to HOA or other initiation fees

o   Prepaid taxes and insurance

 

8. Delivery Time. It may take anywhere from 8 months 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.

 

9. Finishing’s. It's important to ensure delivery terms because they significantly influence the final investment. For example, unlike single family homes where the house is usually fully finished, the standard for many south Florida condo projects is that the projects are delivered “decorator ready,” meaning they're delivered without floors and paint.  They are equipped with:

 

·      Appliances

·      Kitchen cabinets

·      Complete bathrooms with and without floors



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