Selling Investment Property Bought Pre-Construction

Added January 2, 2006 by Ilyce R. Glink

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Summary: Can you sell investment property that you bought at pre-construction prices, before actually buying the property. Ilyce advises the reader that you can flip your investment by selling it to another person even though you bought it at pre-construction prices. When you sell the pre-construction investment property, the new buyer pays a fee to have the original purchase contract assigned to him or her.

Q: Is it possible to buy an option on a property at pre-construction prices, and sell the option before buying the property?

A: Frequently, investors will sign a contract to purchase a property before the foundation has been laid. While single-family houses are normally built within a year of signing the contract, it can take years to build a tall condominium tower.

In Chicago, pre-construction sales on Donald Trump's condominium tower started several years ago. The building isn't expected to be finished for another couple of years.

In projects that take several years to complete, pricing often goes up and investors who took the biggest risk and bought in when the project was just announced will sometimes flip their investment by selling to another person.

The way this is often handled is by "assigning" the contract to another party. The new buyer will pay a fee (i.e. the new sales price) to have the original purchase contract assigned to him or her.

Many new construction buildings now require the original purchaser to close on the property. So, attorneys will set up back-to-back closings allowing the buyer to purchase and sell essentially at the same moment.

It would be highly unusual for a developer to grant anybody an option to buy a property at preconstruction prices. An option is not a contract to buy, but gives you the right to sign a contract at a future date for the price negotiated. Just about all developers need ready and willing buyers to sign contracts to get financing to build the project. Giving you an option would not suit the lender and the developer would probably not go for it. The developer is looking to have contracts signed with buyers not possible buyers locking in at early pricing.

For more details, talk to a real estate attorney who works frequently with buyers who purchase new construction off the blueprints.

Jan. 2, 2006.

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