The presale process is composed of four distinct phases – Reservation, Examination/Contract, Construction and Closing.

Reservation

The Reservation phase is the first offering to the public. Developers will provide preliminary renderings, floor plans and prices of the project. Developers may host a presentation event. During the reservation phase buyers can make a reservation to purchase a unit at a significantly discounted price. A deposit will be required at the time of reservation, which can range between $10,000 to 10% of the purchase price.

The Reservation phase is necessary for the project developer. In order to obtain financing, the developer must show there is a demand for the project. The reservation is revocable; therefore, there is little risk, though it is important to check the requirements of each development.

Examination & Contract

During the Examination & Contract phase the developer will provide the buyer an opportunity to review the public offering statement & contracts. The public offering statement includes final renderings, floor plans, by-laws, covenants, restrictions, budget, etc. Generally, the buyer will have a specific number of days to review the information in order to decide whether to purchase or not. If the buyer chooses not to purchase, their reservation deposit will be fully refunded.

If the buyer chooses to move forward and purchase the unit, the reservation will convert to a purchase and sale contract. An earnest money deposit will be required which may range between 1% to 10%, though requirements will vary by development.

Construction

Once the developer has sold enough units, they will move forward to construction of the project. Construction can range from 1 to 2 years depending on the size and scope of the project. Typically, prices rise and units sold during the construction phase are higher than the pre-construction price. By the time the project is complete, buyers may realize an appreciation in value. Any appreciation is dependent on market conditions at the time of completion.

Closing

The final stage is closing. Closing on a pre-sale is similar to the closing of any other real estate transaction. The buyer will have a walk-through inspection, provide the remainder of the down payment, the loan will be funded and escrow documents will be signed.

Many developers may provide financing options through third parties (e.g. banks) providing long-term rate locks. However, buyers are responsible for obtaining their own financing, whether utilizing the developer’s recommended lender or your own lender.