How To Sell A Pre-Construction Condo Contract
Some of you are buying pre-construction condos or are thinking of making this type of investment. As always, I caution my clients not to buy a pre-construction condo unless they are prepared to close on it. Some of you are planning on selling the condo prior to having to close on it. Unfortunately many of the communities have a clause that forbids you, as the buyer, to assign your rights to another buyer. How then will you sell your condo? The short answer is: “THE DOUBLE CLOSING”.
The closing is a process during which title is delivered by deed from the seller to the buyer. In the case of a pre-construction condo sale, a “back to back” or “double escrow closing” is utilized. There are, in essence, two simultaneous closings, one where the title is transferred to you from the developer, and one where you transfer the title to the new buyer.
Let’s go through this step by step.
1. You decide to sell your “contract”.
2. When you find a buyer we have him execute a standard Realtors contract for the agreed sales amount.
3. I usually suggest the new buyer put up a ten percent deposit. This money DOES NOT GO TO YOU but goes to the escrow agent - (Chicago Title, for example). This is an important point; you will not get your money until the condo actually closes.
4. The only party that comes to the closing with cash will be the end buyer (your customer).
5. All fees are paid and deducted for the appropriate parties. Funds are delivered to the appropriate parties.
6. The closing agent will record two deeds, one after the other. One of these recordings you will be responsible for the fees on.
I guess this could also be called - How to execute a double close. Nice article, GFOUS!
Thanks for guiding the beginning investor through the double closing process. However, I have done several such condo deals in North Carolina, South Carolina, and Mississippi without ever having to perform a double closing. And I do not like doing double closings because they are much more expensive and time-consuming than assigning the contract.
The reason is that, unless the community is especially popular, you can negotiate with the builder for terms that are suitable to a real estate investor. Most of them are looking for cash flow, so that the banks will raise their line of credit limits. This gives you tremendous power because, in many cases, they need that increase to finish their community. This past week, for example, a company that I work with negotiated owner financing at 6% interest with interest-only payments for one year. Maximize that leverage!
Also, if you want them to give you the ability to assign the contract, simply tell them that you own several companies and that you may want to change the owner for tax reasons. Nine times out of 10, they will not have any problem.
Not trying to contradict you. In some cases, such as a popular community where competition is fierce, double closings may be the only way. In most cases, however, good negotiation skills can help you achieve favorable terms.
Dural is right on...the reason the builder or developer is selling pre-construction rights is to raise capital, so he/it is a highly motivated guy or entity as to the buyer's demands.
In short, if that's what the buyers' have to have, then that's what they'll get, or the developer has to let that prospect walk..not likel!
I certainly agree with you that assigning the contract is much more favorable than the double closing. In the hot communitites that I generally invest in - and I do not suggest investing in pre-construction unless the community is very hot- (duh) assignability is almost always forbidden in the contract if not actually enforced.
I have bought in the name of LLC's in hopes of avoiding the double closing, but developers banks have added verbage that even makes this cumbersome. "The final purchaser , if an entity, must have substantially the same ownership as the original." - or something like that.
Bottom line is, don't get into the deal if the cost of the double closing would make the deal unprofitable - and you should try to get the deal done without the double closing by either assigning the contract or selling the LLC.