I have many clients that ask me the benefit of buying resale vs. pre construction and vice versa. I have never been a huge supporter of pre construction as a whole, but there are some projects that make sense. There was a time when pre construction was a no brainer. It was cheaper with significantly higher appreciation, this is no longer the case. I will do a quick break down.
Pre construction has a higher price than resale within the same neighborhood, typically 100 to 200$ per square foot, however I have seen even higher.
Can be 4 to 5x higher (depending on the project) for Pre Construction vs. Resale.
If you’re buying your primary residence the minimum is 5% down up to the first 500 k, then 10% on anything from 500 k to 1 million. With pre construction the down payment is 20% minimum, with the exception of a few projects that require less. For the most part you have much more flexibility with resale.
Interim Occupancy Fees
This does not exist in resale. With pre construction you will be paying a monthly fee that does not go towards your mortgage. This usually starts somewhere between 6 months to 1 year prior to your official closing. These amounts range from $1000 to $2000 per month for an average size unit.
Delay in Occupancy
With resale, if the home does not close on time someone is most likely getting sued. Where as pre construction you could have delays of 2 months or even 2 years and there’s nothing you can do about it.
Getting what you want
With resale you have seen the unit or home, you have multiple buyer visits after purchase, you know exactly what you are getting. Pre construction you are buying renderings and a floor plan, however, the builder is allowed to move a column here or there. A HVAC unit may take up a corner now where it originally wasn’t and there’s nothing you can do about it. You can maybe give the unit back and get your money back, but you have wasted a lot of time in the process.
Sale Doesn’t Go through at all
It is highly unlikely with a resale property that it does not close at all, there would have to be some pretty extreme circumstances. With pre construction there are plenty of projects that do not go through at all. You will most likely get your money back it just might take awhile. Which will leave you at a loss on appreciation.
This is the big one. There was a time when pre construction appreciated faster than resale, unfortunately that is no longer the case. Many agents will lead you to believe this, it is not true. The resale market increases at the same rate, if not higher than pre construction and there are plenty of recent examples to back this up.
If your project doesn’t go through, you have lost years of time and get no return on your investment. You make no interest with the builder, therefore, when they give you your money back after the project doesn’t complete you are left to buy in a new market. What you bought previously is now$100-$200 per square foot higher. With resale the risk comes from the bones of the structure. Condo resale there is very little risk in the structure of the building. With a home you could run into major issues, so make sure you get a home inspection done.
I find that builders are trying to cram more and more units into buildings. as a result the units smaller and smaller. You will most likely get a more functional unit in an older resale condo.
Flexibility with Down Payment
I will say that if you need time to put a down payment together, then pre contstruction is the better option. You will have years to get your deposit down payment together. Resale your down payment will be due the day of closing, which is usually in the 30-120 period.
Overall you will hear many agents push pre construction. The reality is agents get paid almost double to sell a pre construction unit vs a resale unit. A good agent should give you the full scope of the market. So you can weigh for yourself what your best option is for your situation.