Gerard Allard
New Developments
New Developments usually end up on MLS at some point however most of them linger out of MLS until the developer can get all of their documents put together to satisfy all levels of government regulators and of course the MLS requirements to advertise. At this point they are still sellable and usually at the best price. Payments usually start at 30% down and then scheduled payments until the last 10% to 15% on delivery. The larger the deposit usually you can get a larger discount. Let me explain further about the good, the bad and the ugly of new developments.
The Good
1• Pricing of new developments comes with a discount so when the project is first announced and they are just scratching the earth in their construction you will find the best discounts. As time and purchases start to stack up the discounts shrink. If you purchase something right at the beginning of the construction process, you should see a 30%+ increase in equity when the building is completed.
2• You will get a brand new product with modern construction methods.
3• As the building is new there should be little extra maintenance for at least 10 years so HOA should not see large increases.
4• SOMETIMES if you get in early with a purchase you can have a say on the layout of your unit as well as finishings. I stress SOMETIMES!
The Bad
1• Usually it takes 2 years for the construction to be completed so you are without your deposit investment income for that period which includes rental income if you would have purchased an existing unit.
2• It is hard for most people to envision the finished product so I would say most people wait until there is something built including a show unit HOWEVER that means you have missed out on the best discount that was offered when it was just a sparkle in everyone's imagination.
The Ugly
1• Your deposits towards the final delivery of your unit does not go to escrow but to the developers pocket so he can use your funds to build your unit. As this is not going to escrow if something happens to the integrity of the developer you may be at risk of waiting years for your money back or the completion of this project. Now there is a way to minimize this risk and that falls in the hands of your agent. They are:
a• Agent needs to know who the developer is, what he has done in the past, was the delivery on time and how deep are their pockets.
b• Your agent should be aggressively negotiating a strong late delivery penalty on your behalf.
2• With new developments there is still a closing cost that is the responsibility of the buyer. Please see the ¨detailed information ¨ tab on my website for the general explanation of closing cost. The difference here is that the developer writes the contract so it is heavily favored towards the developer, they normally use one notaria and one closing coordinator. This results in the developer SOMETIMES setting the percentage of the closing cost higher than the industry norm. Now I stress that this does not happen all of the time but your agent needs to ask this question as the sales agent won't mention it until they have to. In my opinion this is basically a kickback for all associated with the developer. I BECOME VERY SUSPICIOUS OF DEVELOPERS WHO DO THIS AS I WONDER WHERE ELSE ARE THEY PLAYING GAMES.
3• I become very suspicious of developers who promise lots of bells and whistles such as vehicles for the residents to use, yachts for the residents to use and out of the ordinary common areas. What I find happens is the initial price is based on all of these bells and whistles but 3/4 down the road they inform you that they are not going forward on the large vehicle and yacht purchases and they are taking this huge common area and making it into extra condos to sell. They will explain that this will save on HOA payments down the road which it will HOWEVER they will not reduce the price of the unit which already factored in the cost of all of these bells and whistles. It is your agent's job to see through this smoke screen.
My Overall Position on New Developments
I would buy a new development in a heartbeat as long as I have done all of my homework mentioned above as the equity increase is attractive.
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