Party time is back again… condominium pre-sales are back in fashion with residential buyers. Nothing seems more fortunate for developers than being able to sign sales contracts and take deposits for units in a building that doesn’t yet exist.

Wise developers know that no opportunity comes without risk, though. Let’s take a look at pre-sales — the good and the potentially bad/ugly of selling the dream.

First off, what is a pre-sale?

A pre-sale is when a condominium unit is legally offered for sale on a pre-construction/early stage of construction, price-discounted basis solely off of mouth-watering photo-real renderings, a building scale model, a construction webcam, subject-to-change unit interior finishes specs and floor plans, and a sales center (ideally with a vantage point on the site…sometimes initially a trailer near or on the site).

What opportunities are provided by pre-selling?

  1. Proof of market demand
  2. Initial marketing and sales momentum
  3. Sources of funds for development from non-refundable sales deposits (thus equity player diminished cash investment requirement).

The latter is not available in all jurisdictions or in all cases, but it’s a sweet bonus if it is.  Our condominium development modeling templates (Pro version | Standard version | comparison) allow for up to 100% of pre-sales deposits to be purposed towards development.

What risks does pre-selling introduce?

  1. Selling at too low of a price if market pricing continues to rise
  2. Making representations to pre-sales buyers that you end up breaking, such as changes in unit layouts and in the interior unit finishes schedule
  3. Cannibalization of your regular sales by pre-sales buyers who flip their never-occupied units upon construction completion (this opens up the can of worms of which units you should pre-sell).

I’m sure I’ve missed some important ones. Please add more in the comments below!

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From a potential investor’s perspective, there’s too much noise in the presentation on crowdfunding platforms. It’s too hard to compare offerings. This would be a helpful overview of all current offerings that could be made interactive such that the visitor could click on each one, see a tooltip (caption box) of additional details, and then click for more details.

Thoughts?

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Posted in: Crowdfunding

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