To Close or Not to Close? – Tough Decision Ahead for Preconstruction Contract Holders as Closing Dates Approach

July 1, 2007 by Lucas Lechuga

Closing dates are quickly approaching for preconstruction condo holders in several big name developments. Closings continue at Midtown 2 while closings at Latitude on the River and Ten Museum Park began a few weeks ago. Closings at Opera Tower and Onyx on the Bay should begin later this month.

I’m sure a good number of these contract holders have asked themselves whether or not they should close. Most have probably even crunched some numbers to figure out what they should do. With deposit money equal to 20 percent of the total purchase price at stake, it is a very important decision.

The question on everyone’s mind is what percentage of these condo units are owned by investors versus those who intend to occupy the unit. An even better question though is of the investor-owned units, what percentage are owned by people who were looking to flip their unit prior to closing versus those intending to hold long term.

Those who were looking to flip their condo prior to closing most likely had their unit in the developer’s resale program. Each resale program is a bit different and the fees required to resell the unit can vary greatly. Most charge a 6 percent commission as well as a transfer fee which I’ve seen range from as little as .75 percent to as high as 7 percent. For example, Ten Museum Park charges a .75 percent transfer fee, or 6.75 percent when including the commission, while Opera Tower charges a 7 percent transfer fee, or a total of 13 percent when including the commission.

I think Ten Museum Park might have a few forfeited deposits but nothing too serious. It gave contract holders another option besides walking away from their entire deposit. They are allowing contract holders to accept a loss but still get back a portion of their deposit money. This past week I had a client who purchased a unit at Ten Museum Park from a contract holder for $55,000 less than what it was purchased for in January of 2004. The contract holder also paid the 6.75 percent fee which totaled $61,087.50. Of the $181,000 that the contract holder laid down as a deposit, they will see $64,912.50 at closing. It’s a big loss but it is still better than walking away from the entire 20 percent.

Buildings like Opera Tower and Quantum on the Bay, however, are not giving their contract holders many options. They aren’t allowing people to take a loss until after closing. In fact, at Quantum on the Bay, it is required that you list your unit at a minimum of 16 percent above the purchase price. That is insane! Who is going to buy that? You might as well not have your unit in the resale program because it won’t sell. Quantum on the Bay charges a total of 12 percent in fees to resell a unit in their resale program.

Of course, contract holders could do a simultaneous closing to avoid these heavy transfer fees. However, most first time investors are unaware that this option exists. Even if they are aware of this option, they still need to find a replacement buyer or hire a real estate agent to help find one for them.

Time is running out and many are asking whether it is better to close on their unit or walk away from their 20 percent deposit. Keep in mind that most developers charge a developer’s fee which is due at closing. This fee is typically 1.75 percent of the purchase price. Also, units come “decorator-ready” so additional money will be required if you want to have the option of renting it out in case it doesn’t sell. Too many times I have seen people hope that they could quickly flip the unit after closing rather than invest additional money into the unit. The unit ends up sitting on the market for six months and then they decide that they’ll have to rent it out. They would have saved themselves a lot of money if they had prepared to have the option of renting the unit at the beginning rather than wasting six months. You’ll need to spend money to install floors, window treatments, light fixtures and to have the walls painted since most come with the walls only primed.

A lot of people will end up pulling money out at closing to pay for these expenditures. For example, someone might choose to do 90 percent financing so that they can get 10 percent back at closing. That 10 percent will pay the developer’s fee, closing costs and expenses for flooring, window treatments, light fixtures, etc. The money will also help pay the mortgage until the condo is either sold or rented. Unfortunately, in recent times, 90 percent financing isn’t as readily available as it was in the past.

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20 Comments on "To Close or Not to Close? – Tough Decision Ahead for Preconstruction Contract Holders as Closing Dates Approach"


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Anonymous
garrett
9 years 2 months ago

appreciate your insight. i’m considering purchasing (taking over) an interest in a #4 unit at 10 museum park. the price is $830K (about $440/sqr ft). this would be strictly as an investment. any thoughts on the long-term prospects (3-5 yrs) and rentability of these units?

Anonymous
9 years 2 months ago
Garrett, Are you looking to take over unit 2404? I heard today that it just fell out of contract within the 15-day rescission period. If I were you I would throw out some offers on a few units for $800K to see how truly motivated they are not to close. Those units were originally purchased in January of 2004 for $825K-$995K. Those who purchased in the $825K-$850K range may be willing to split some of their deposit with you to allow themselves to walk away with something rather than walk away from their entire deposit. They still need to pay… Read more »
Anonymous
Jack
9 years 2 months ago

How do I get In touch with the contract holders of units In the 08 line.

Anonymous
Lars
9 years 2 months ago

Hi,

I want to purchase in Midtown4 for an investment at an upper floor and will be looking to rent out my property.

Do you know what a 2b/2b 1400 sqft+ter with bay view would go for realisticly on a monthly basis?

regards

Anonymous
9 years 2 months ago
Lars, The problem with the Midtown Miami project is the neighborhood surrounding the development. The project is beautiful and the Shops at Midtown are a great addition but it will take some time for people to be willing to pay top dollar to live in that neighborhood. With the exception of the Midtown buildings and Cynergi, the rest of the buildings are very old. It’s not a neighhorhood that people will feel safe to walk around in for quite some time. That being said there will still be some interest from people to live there because it is new and… Read more »
Anonymous
pete
9 years 2 months ago

Guys
Cant believe you still talk around $400/sq ft.Your in dream land
Miami will never be NYC.Couple years most condos will be $200/sq ft the blood bath hasnt yet started.Wait till the flippers start feeling the pain with the maintenance and property tax and it serves the greedy b$%ds right.

Anonymous
Pedro
9 years 2 months ago

We have options in 2 units in the Icon Brickell tower 1.

We would like to know how to opt out of this options contract?

Our main reason is that one of the family member who own the options died.

Thank you

Anonymous
9 years 2 months ago

I would first talk to the developer to see if they will let you out. If you got a really good price and they feel that they can resell your unit at a higher price then they’ll probably let you out. Your other option is to find a replacement buyer.

Anonymous
Pedro
9 years 2 months ago

Thank you very much, I will

Anonymous
Guy
9 years 1 month ago

Hi, I don’t want to close on the 50 biscayne , Fifty Biscayne #5101 in Miami Downtown. welcome for advices Thanks

Anonymous
pat
9 years 1 month ago

We are scheduled to close soon on unit 3806 in Opera Tower. Should we close? As in everyone, we cannot sell other properties to continue with this.

Anonymous
John
9 years 1 month ago

How can u find out more about people or investors trying to opt out of contracts to catch a place at preconstruction costs, or is it really just running up on one of these by luck?

Anonymous
9 years 1 month ago

John,

Which building are you interested in? I have a bunch of different units in different buildings where people don’t want to close and are willing to sell them around for what they paid for them. Some are willing to take a significant loss.

Anonymous
mitch
8 years 11 months ago

I am looking tosell a 52nd floor classico unit (5209) at Opera Tower that comes with marble flooring throughout. I pd. $392k and would accept $340 including the upgrades and marble flooring.

Anonymous
David Curtin
8 years 10 months ago
HI there My name is david im from ireland, my question for you is( before i do heres a brief out line in how we purchased into mid town) that my brother and I were alerted to the mid town miami project by an acquaintance of my brother, this guy has a very good friend in the real estate business in ireland who purchased a block of mid town prconstruction for resale in ireland ,going on his advice and probably very good sales talk we decided to invest in mid town .we were also told of the amazing return on… Read more »
Anonymous
michael
8 years 9 months ago

I bought into 900 biscayne and would like to walk away. I do not want to close. Can I do this ? Would the developer cme after me for liquidated damages?
please advise

Anonymous
Ramy
8 years 9 months ago

Any thoughts on Trump Tower one? I have a C unit and I’m having a hard time deciding if I should close on it and rent it out or try to get rid of it at any means necessary? I got in at a crazy low price the same unit sold preconstruction in the 3rd tower for 50% more! Anyone want it for the same price I paid for it over 3.5 years ago?

Anonymous
GARY
8 years 8 months ago

I have a 1 bedrm on the east side of Opera Tower 34th Floor Facing the bay unit 3403.Will sell for my original buying price 282,000 Just want my 20% deposit back and you can have it..

Anonymous
Alma
8 years 7 months ago

I have a contract for a 2 bedrm on the 35th floor with Bay & city views. I paid $429 and I don’t even want my full 20% back. I’ll take an offer to assign the contract.

Anonymous

[…] negative publicity over this, that anyone who hadn’t bailed before is definitely thinking of bailing now. The Great Miami Condo Crash is going to make mincemeat out of the desperate Miami developers who […]

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