Comprehensive Guide to Buying a Pre-construction Property or Condo in Miami
Jan 18, 2023 January 18, 2023
- Why You Need to Read This Miami Pre-construction Condo Guide
- What is a Pre-Construction or New Construction Condo?
- Why Buy Pre-Construction?
- Miami Pre-Construction Phases
- How to Negotiate the Best Miami Pre-Construction Deal
- How to Finance a Pre-Construction Condo Property
- Closing Costs for Pre-Construction Properties
- Tips on How to Cancel or Get Out of a Pre-Construction Contract
- Choosing the Right Miami Neighborhood and Project for Your Pre-Construction Purchase
- List of Miami Pre-Construction and New Construction Properties
- If You’re Going to Buy Pre-construction, Buy it Right
- Miami Pre-Construction & New Construction Condo Buying - Frequently Asked Questions
So, you are thinking about buying a condo in Miami, either as an investment, a place to call home or a pie de terre for you and your family to visit whenever you wish. Regardless of the reason, buying a Miami condo should be a pleasurable experience that you can enjoy both financially and for your lifestyle.
This article was last updated on January 18, 2023. NOTE: This guide is meant to be comprehensive starting point for you to get an initial understanding Miami condo pre-construction development and buying. It should not be used as a replacement for legal or other professional advice. Every condo and situation is different, and unless we are privy to the exact pre-construction contract and condo you intend to buy and we are the ones signing as your realtor on the dotted line, we can’t make any guarantees to you.
What is a Pre-Construction or New Construction Condo?
Basically, a Pre-Construction Condo Property is one that you are buying before or while it is being built. You are buying your unit based off of the permitted plans, specifications and renderings of the building, and depending on where the building is during the construction process, possibly a partially built unit.
The development of a property has several stages, including planning and permitting, the construction and building process, and finally, the completion and move-in period. In a larger project like a high-rise condominium building, these stages are more specific given the scope of the project.
The four general stages of construction are:
- Planning Stage - The Planning Stage involves a lot of planning and budgeting work by the developer. This will include feasibility studies, and discussions with architects and engineers, land use attorneys and government to get a general idea that the desired size and scope of the project is possible for the budget and expected profit.
- Pre-construction Stage - Once a project has passed feasibility, the Pre-construction Stage begins with architectural planning and documentation, including the creation of construction documents. These documents will be used for securing building permits to begin construction.
- Construction Stage - Once permits have been approved for the construction of the building, construction can begin. This process can take one to two years for a condo building.
- Close-out Stage - Upon completion or “topping off” of a building, and all construction steps have been approved, the Close-Out Stage has begun. This is the stage that sales contracts are finalized and residents are able to start moving in to their new units.
There are several reasons why buyers want to purchase a condo property during the early development period, or pre-construction period. You might be buying a pre-construction condo in Miami for one of these reasons:
Price - Oftentimes, developers offers early-bird pricing and certain incentives during the Pre-Construction period. This means you will likely get a better price for your condo by purchasing it early. Essentially, you want to lock in a beautiful condo at lower prices so you can benefit from rising real estate prices, while not actually having to worry about maintaining the real estate while it is being built.
Pride - You love knowing that you are the first owner and no one has lived in the unit before.
Preference - You like being in charge of your own destiny, by having first choice at exactly the floor plan you want and exactly what floor you want -- options only pre-construction can offer.
When you are starting your search for available pre-construction and new construction properties, you will find condo projects at different stages of their development, and each stage has its own benefits. You’ll definitely want to know about each stage to know which suits you best based on the factors we discuss below.
Pre-Construction Buying Phase 1: Reservation
This is one of the earliest stages to buy into a pre-construction project. As mentioned above, this is during the middle of the planning stages. Typically, the developer has all the floor plans and initial design of the building available. They usually have selected initial or final finishes, appliances, etc, so you will have a very strong idea of how your final unit will look like. The building plans are still in approval stages with the city, and the developer has also submitted for approval to officially register the condominium with the State of Florida.
In this phase, the developer typically offers deep discounts for the buyers willing to jump onto the project early on to help the developer create buzz and get a strong pre-launch for the project, as well as secure reservation sales that show lenders the building is likely to sell its inventory. During this phase the buyer is requested to sign a non-binding Reservation Agreement to secure their selected unit and typically need to pay a 5-10% deposit to secure it.
|Low deposit requirement||Some details about the building may change, some unknowns remain|
|Wider selection of units to choose from||Occasionally the project may not be built (although your deposit will be returned)|
|Lowest, “early-bird” prices||May take longer than expected|
|No penalty to cancel at any time|
Pre-Construction Buying Phase 2: Contract
At this point the developer has received approval on its plans from the city and also has received official approval for its Declaration of Condominium with the State of Florida. This typically happens 3-6 months after the beginning of the Reservation phase. Now the developer can officially go under contract for its pre-construction units. You will receive a developer contract and also the full condominium documents. At this time, the developer will typically require a total of 20% (if you already paid a 10% reservation fee then you will pay the 10% remaining balance).
|What you see is what you get||Larger deposit required (typically 20%+)|
|More certainty that the condo will be built||You only have 15 days to cancel and then you are obligated to move forward or lose your deposit|
|Below-market prices||You may have less units to choose from|
Pre-Construction Buying Phase 3: Construction
Construction begins with “groundbreaking” where the developer starts building the foundation of the project. At this point, the developer typically requests an additional 10% deposit. Then, at certain milestones of construction, such as reaching a certain floor or when the building “tops off” (i.e., when they pour the concrete at the top of the building), they will request additional deposits until they reach a 50% total deposit.
Depending on the size of the building, it can take 12-18 months from groundbreaking to topping off. And while "topping off" is a major milestone in the construction of the new building, it is not yet complete. Once a building has been topped off, its exterior shell is finished, allowing the focus to safely move towards completing interior finishes. From topping off to completing interiors can take another 6 months or more.
The last stage of construction is just before closings can begin. Depending on your local government, this is often referred to as when the building gets it "TCO," or Temporary Certificate of Occupancy.
|2 years or less away from Closing||Less selection on inventory|
|Building plans and finishes are most certain||Deposit requirement will likely be 30-50% depending on time of entry|
|Below-market prices||Pricing higher than Reservation phase|
Pre-Construction Buying Phase 4: Completion/Closing
After a building has topped off, they have worked on the interiors, and the building has its TCO, the construction is nearing completion. What is now left are final finishes, landscaping, and final permitting approvals. This is the period that “Close-Outs” or “Closings” will begin.
“Closing” is the day that the contracts to sell are fully completed, and the total monies for the unit are exchanged between the seller/developer and the buyer. Now the buyer becomes the official owner of the property. Once the developer receives the Final Certificate of Occupancy (CO) from the County, which gives permission for people to start residing in the property, the developer will send out letters requesting closing within 30-days. As soon as you have closed on your unit, you are able to schedule your move-in date.
|See the finished product before buying||Close-to-market prices|
|Have a fairly accurate date to move-in||Less selection of condo inventory|
|Less choice of customized finishes or fixtures|
Pre-Construction Buying Phase 5: New Construction Re-sales
After pre-construction buyers begin to close, some may want to resell their units. Sometimes this still creates an opportunity to receive a discount on market price for the new buyers, and other times it provides a convenient opportunity to buy a unit that has already had the final finishes and interior design completed by the first owner.
|See the finished product before buying||More likely buying at or close to current market prices|
|May already have final touches and upgrades||Less selection of condo inventory|
|More flexible move-in options|
|Developer fee already paid|
Buying during the construction process of a new development has more steps than buying a completed product. Because of this, and because developers often want to sell as many units before completing construction, there are several ways to negotiate the best deals if you know how.
Here are some key terms to consider when negotiating for the best deal on a pre-construction condo property:
We find that developers are most flexible in negotiations during these specific thresholds:
- When the market is soft. Consult your real estate broker on the latest market statistics.
- When they are close to 50% sales.
- Right after the developer’s have secured their construction loan.
- When they have their last remaining units left. Often, the developer is ready to sell and move on.
In big cities, parking can be a big deal. City governments often require a certain number of parking spots per unit, but that is changing as more and more cities prioritize public transportation. So if parking is something that is important to you and your family, pay attention. Sometimes you can get an extra parking space thrown into the deal for little or no cost.
Developer fees are built-in fees, similar to a commission, to help off-set the cost to develop the entire project. They are usually calculated as a percentage of the selling price, and typically run between 1.5 - 2.7%. However, these fee can be negotiated down or sometimes eliminated altogether.
Depending on when in the construction process you decide to purchase a unit, interior finishes and fixtures can sometimes be negotiated. In particular, flooring upgrades, carpet credits, and furniture packages are kinds of upgrades and “bonuses” that can be negotiated if you enter your deal at the right time.
Your Real Estate Agent
Many agents are more hungry for the sale in front of them than for the value of the long-term relationship that working with you can bring. Hire a pro who will negotiate on your behalf and who looks out for the fine details that put you in the best position. Negotiating with developers is not easy. Sometimes it takes weeks, and many times you have to know who to talk to up the ladder in order to get the deal done.
Pre-construction properties are almost always cash contracts. This doesn’t mean, however, that you can’t get a loan or financing for your pre-construction property. It simply means that if you can’t get a loan to close on the condo unit, you likely won’t be able to get your deposit back. For each project, there are lenders that are able to offer pre-construction financing.
An experienced real estate agent who will know the best lenders for you to work with if you are considering financing your pre-construction purchase.
It is easy to get surprised at closing when you get your closing or settlement statement while purchasing a pre-construction property. Here are the things you will need to look out for at your pre-construction condo closing:
- Developer Fee. Usually from 1.5 - 2.7%. Sometimes you can negotiate this out.
- Title Insurance. This could be included in the developer fee, so be sure to check for this.
- Association Fees. Most closing statements for pre-construction and new construction condos will require that you pay one month in advance of the stipulated Condo Board Association fee, sometimes known as the HOA fee (Homeowners Association).
- Operating Account or Reserves. You will always be asked to pay two months worth of HOA fees to help build the initial operating account, and possibly the accounts the association will need for replacement reserves (savings for when major items in the building need to be replaced).
- Lender Closing Fees. If you are financing your pre-construction property, your lender will have a number of closing fees including, origination fees, lender title insurance, appraisal fee, and possibly others.
We definitely recommend reading a full comprehensive guide about HOA fees, especially the part about the Miami ones and how they compare to other regions.
You will likely be best off with a lawyer if you need to cancel your pre-construction contract. Some things your lawyer will likely look through to find a way out are:
- Condo docs. If there were any amendments to the condo docs from when you first saw them.
- Construction timelines. If the developer promised certain condo construction timelines in the contract but didn’t deliver.
- Defects/Variations. If there were any material defects or differences in what you were promised and what was delivered.
Choosing the right neighborhood and project comes down to lifestyle and budget. Each neighborhood and condo building has its benefits. We have a comprehensive review of each neighborhood, and you can also search each neighborhood for the pre-construction condo right for you to buy.
We also have several neighborhood comparison guides if you are stuck between a few. Our most popular Miami neighborhood comparisons are:
- Edgewater vs South Beach
- South Beach vs Miami Beach
- Edgewater vs Downtown Miami
- The Miami Beaches: South vs Mid-Beach vs North Beach
- Brickell vs South Beach
- Brickell vs Brickell Key
- Edgewater vs Coconut Grove
- Coconut Grove vs Key Biscayne
If you are going to buy a pre-construction condo in Miami, here at CondoBlackbook, we want to make sure you do it right. This is the first time anyone has ever put together this anything-you-ever-wanted-to-know about preconstruction buying guide to make sure you have all your bases covered and you end up in a great condo that’s right for you in every way.
If we can save you a few dollars or a few headaches with any of these pre-construction buying tips, that’s what we want to do! Do not hesitate to reach out to us with any questions. You can find us via text, email or phone, and we will be ensure that your questions are answered and more.
Q: Why do developers offer pre-construction sales?
A: Developers essentially make you, the pre-construction buyer, their construction and financing partner in the project when they allow you to make a pre-construction purchase. In exchange for you splitting the risk with them on the project, they offer discounts off of the expected market price at time of completion, as well as a refund if the building doesn’t get built.
The discount you receive mostly is based on the time you sign up for your unit. The sooner you get in on the project, the bigger the discount you will receive. This is because the developer needs your early sales and wants to create significant momentum at the initial sales launch, as sales will be crucial to the viability of their project.
Q: How much of my money does the developer use during construction?
A: By law, the developer must hold 10% of the buyer’s purchase price in escrow for the entirety of the project.
Q: Is my money safe?
A: As with any investment, you have the risk of a project not going the way it was intended, however this seldom occurs and if you go with a reputable developer you will significantly minimize your risks. Also, if you work with a real estate agent that is a pre-construction expert, he or she will guide you on the local and international reputations of the developers so that you can make an informed decision.
On another note, during the latest “Great Recession” in the U.S. where the Miami real estate marketing was heavily hit, even though many projects were halted and many developers were foreclosed on or resulted in bankruptcy, we did not hear of a single instance where a buyer was unable to close on the ultimately completed product and with all of his deposit being applied. In other words, the only people that we know who lost were those that did not or could not close when the project was ultimately finished.
Q: What are the penalties if I decide to cancel my pre-construction contract?
A: During the reservation phase the reservation agreements allow the buyer to cancel at any time for any reason. Once the buyer signs the actual purchase contract during the contract phase and receives the condominium documents, there is a 15-day rescission period governed by Florida law that allows the buyer to back out for any reason. After those 15 days, the contract does not leave any wiggle room to cancel without penalty of losing the deposit as long as the developer abides by his written promises in regard to the property.
Q: I want the help of a real estate broker. How much is the fee to have a knowledgeable and licensed Miami real estate broker help me buy the right property?
A: In South Florida, your costs of having an agent help you with your purchase are completely free. However, selecting an agent that is not knowledgeable about your options, the pre-construction process and does not have experience in smart real estate investing can lead to a very costly result for you. That is why, at CondoBlackbook, we can partner you with a highly trusted and experienced agent to ensure that you get the best service and have all the information to make the best pre-construction purchase decision.
Q: Do I get to inspect the property before closing?
A: Yes, prior to closing you will be given the opportunity to complete a walkthrough inspection, during which your assigned agent and a developer representative will review the property carefully for any defects. They will be documented, and the developer will have a ”reasonable” time to correct them, typically around 30-days after closing to address all the defects. In our experience, this typically is a smooth process as the reputable developers have dedicated customer service lines to ensure the checklist items are taken care of.
Q: Is there a warranty on the finishes and appliances in my new unit?
A: Appliances have a warranty between 6 months and one year. Typically, developers will warranty their work for the building and unit for a reasonable period of time. I have seen them be gracious enough to make repairs even many months after closing on a unit. This may vary from developer to developer, and developers are typically more gracious if they are still doing lots of closings and still have repair crews and open master permits on-site.
Q: Why should I buy a pre-construction property when I can buy a ready-to-go condo?
A: Historically, buying pre-construction provides an excellent opportunity for a buyer to get a solid discount off market prices for a brand new property. The exchange is that for your discount, you’re waiting for a finished product and are essentially helping to fund some of the construction costs. Additionally, in strong market, it is likely that your pre-construction property will increase in value over the time that it is built.
Many buyers also buy pre-construction as a way to partake in the growth momentum of a city without having to manage the property the first couple years of the investment (i.e. while it is still under construction). Many end-users who will live in the finished product love being the first to live in a brand new property with all of the most modern features and amenities.
Already-built condos are excellent opportunities for buyers who plan on using their property right away, need immediate living arrangements, or prefer to have full visual certainty on what they are purchasing. Already-built properties offer the visual and spatial clarity some buyers are looking for.
Q: Can I see what the finished product will look like before I make my purchase?
A: You will certainly know your floor plan, unit location and the majority of the expected finishes of your unit prior to signing the purchase contract, and you will be given an opportunity to visually inspect the property prior to closing day.
Q: How do I know what I am being shown is what will ultimately be delivered?
A: By going with a developer with a good track record and reputation you can be more certain that you will receive what you have been promised. A good pre-construction real estate broker can guide you on the history of each developer, and you can factor that into your final decision on which project is right for you. It’s likely that you could also see finished properties by the developer to have a sense of their work. Since a pre-construction real estate broker does not work for any particular condo developer and only has incentive to find you the project that suits your needs best, they should be able offer their honest opinion on which projects will be more likely to deliver than others.
Q: Will my unit be delivered in ready-to-move-in condition?
A: Some projects are delivered 100% complete and ready-to-move in. Others offer optional finishes and design services at an additional cost. And most projects are delivered “designer-ready”, which means that they are delivered fully functional with complete kitchens, appliances and bathrooms, but floors, wall paint, light fixtures and other finishing touches are left to the buyers to complete. We have trusted local vendors that we can refer to you as needed, and we are always happy to help our customers complete design and renovation projects here locally if it is not convenient or possible for you to be in town to oversee.
Q: What will my association fees be?
A: Association fees are around $.70/ square foot per month on average, however projects can start as low as $.60 per square foot and up to $1.30 per square foot per month, depending on the level of services, luxury and exclusivity of the property.
Q: What are typical closing costs?
A: Developers usually charge 1.7 - 2% fee at closing to cover the sales taxes and other administrative and closing costs. In addition to that, you will be required to pay the first month of your association fees, plus the equivalent of two months of association fees into the reserve account of the condominium association for the purpose of a fund for future common area repairs and replacements.
Q: What are the deposit requirements to secure a Miami preconstruction condo?
A: Deposit requirements start as low as 5%, but are typically 10% of the purchase price. Some developers will set a fixed deposit structure based on the type of unit, e.g., $50,000 for a one bedroom, etc. Depending on the phase of development, however, the deposit requirement can be up to 50% of the purchase price. Please see Miami Pre-Construction Phases for more detailed explanations.
Q: Can I invest in and flip a pre-construction condo?
A: Most developers strongly discourage condo flipping and have created various clauses in their contracts and sales processes to prevent it. Many also require that if you want to find a buyer prior to closing that you get their approval and even possibly sell through their official resale service and pay a predetermined real estate commission for their resale services. That said, it is definitely possible and can be lucrative in the right situations.
Q: Can I buy a pre-construction condo in the name of a company?
A: Yes, you can buy in any type of entity. The developer may require certain documentation of the entity for their records.
Q: Can I resell my pre-construction condo unit before or after closing?
A: We can certainly help you find buyers who are ready and willing to purchase your property at a great price. Depending on the developers rules, we can either sell the property prior to closing, complete a “simultaneous closing”, or prepare your newly finished condo for maximum appeal and put it on the market to sell directly after you close on the property. A simultaneous closing is when the prospective purchaser of your condo purchases the property the same day of your closing.
Q: Why do I need a real estate agent to help me buy a pre-construction condo?
A: There are a large number of options for pre-construction properties in Miami, and each developer is eager to convince you that theirs is the best. In fact, the developer representatives are professionally trained to convince you into buying their project over all others. Making the wrong decision can be a costly mistake for you as a buyer.
At Condo Blackbook and Blackbook Properties, we do not represent any one developer, and we have significant pre-construction sales experience. We’ve even bought into some pre-construction condos ourselves. We know the reputation of each developer, understand the benefits and risks of certain locations, and we also understand what products and features will offer you the safest investment in terms of rentability, resale and overall enjoyment. As they say, “it’s the details that count”, and we can provide the details you need to make the right decision.
Q: When is the best time to resell my pre-construction condo?
A: Typically, you will get maximum return on your investment 1-2 years after the project is complete, as that is typically when overall available inventory in a property has decreased, other owners have completed and upgraded their units which makes the property more valuable, and the condo association and amenities will be most organized and at maximum efficiency. However, depending on the market and specific condo building, the best selling times may vary.