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November 23, 2014

Pondering the Presales Puzzle

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Pondering the Presales Puzzle

With home buyer demand on the rise and available residential units in short supply, many developers in New York, Miami, and other cities are preselling units months or even years before new buildings are completed.

In Miami, the 18-story Faena House already has half of its 47 units under contract, with buyers making 50 percent cash deposits on the $2.5 million-to-$50 million units even though concrete is still being poured at the basement level.

Presales are important to developers now that lenders are requiring that at least 50 percent of units are sold or another benchmark is met before the construction loan is completed; in South Florida, much of the construction is bankrolled with buyers' cash down payments.

Developers have employed such tactics as using mini helicopters to take photos of the city skyline, shelling out hundreds of thousands of dollars to create mini replicas of different apartments, and even using art exhibitions to market their projects. However, experts say presales come with the risk that developers might underprice the units or the housing market might tumble again before the project is finished.

Source: "Buy Now, Look Later," Wall Street Journal (07/12/13)

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