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Based in a very convenient but scenic area of the Central Valley – with awesome valley views – this real estate project has been built by an experienced developer with six completed homes so far and two completed towers with four more towers yet to be built.
Each apartment building is only three floors with only two apartments per floor…
There are far larger than normal protected, green areas in the project and also surrounding the project but only two of the six apartment buildings have been completed so far so here’s my question for you real estate investors out there:
If someone buys into one of the already built apartments – bearing in mind that this buyer could be living in what will be a construction site for perhaps another two years – what ‘risk’ and ‘inconvenience’ discount would you require if you wanted to buy an apartment in one of the two completed buildings ?
Would you buy at a 5% discount?
Would you buy at a 10% discount?
More?
Based on my experience here, I have my own admittedly unscientific opinions on the topic but would LOVE to hear your feedback…
Scott Oliver
Hmm. Unfinished project. After seeing various discussions on this forum about projects that were abandoned [u]unfinished[/u], I’m not sure that any discount would induce me to buy.
I appreciate your comments but it is not abandoned… They have finished 25% (two of the four apartment buildings) so my question remains…
Anybody else have some constructive feedback?
[quote=”Scott”]I appreciate your comments but it is not abandoned… They have finished 25% (two of the four apartment buildings) so my question remains…
Anybody else have some constructive feedback?
[/quote]I spent some time touring the Hermosa, Coco, Tamarindo, and Flamingo areas in May looking at condos, and will return in September to look at others. There were a number of complexes that were partially done. Some with completed common areas (pools, clubhouses, and such) others without. Yet others had shells of additional units in place but not completed. Some appeared to be stalled, some have now been downsized with no foreseen completion of the original plan.
The question comes down to balancing the concerns that the project may never be completed and default since the units needed to fund the common charges to operate the facilities don’t get completed. Or that your beautiful new condo will forever be next to an overgrown shell of a building never completed or promised infrastructure that never comes to exist.
Looking at, and determining an acceptable discount for taking such risk is something one would have to base on too many factors and would require getting both a look at the site as well as the financials.
It would depend very much on the proposed sales price.
Is it what we would consider a Good Deal (lower discount is o.k.), or are the prices above market value (higher discount is more attractive) ?
– I would get an appraisal (construction value, land value and market value).
– I would try to negotiate to hold back a percentage of the sales price until completion of the whole project with all the promised amenities.The ‘hold back’ is a great idea Elisabeth – thank you …..
For the purposes of this question, let’s assume that we have a real life $ figure which is the price that most quality apartments are selling for in this area.
The infrastructure is in place, there are people living in the first apartment building and in some of the homes and the swimming pool and ranch will be finished by the end of September….
The developer is a very experienced developer with over 600 properties completed ….
If you were to buy one of the apartments which has already been built – bearing in mind that this buyer could be living in what will be a construction site for perhaps another two years – what ‘risk’ and ‘inconvenience’ discount would you require if you wanted to buy an apartment in one of the two completed buildings ?
Would you buy at a 5% discount?
Would you buy at a 10% discount?
More?
With completed and occupied units as well as the common facilities finished it comes down to confidence in the builder.
One with deep pockets and a proven track record (600 units) of completing projects would make me feel pretty comfortable taking the risk on a competitively priced unit.
So a discount in the 10% range would be reasonable for the “risk” and possible inconvenience of living in what might be a construction zone for a while. Besides it would make for a nice profit in two years when the project is complete!
I don’t like the idea of a hold back since in my experience it can sometimes lead to legal action when the parties disagree as to whether or not the conditions have been met to trigger release of final funds.
Besides taking a risk and putting up with inconvenience should be rewarded with a proper upfront straight sale price discount. And as any developer will tell you, having cash flow while in the building process is very nice!
At the [b]VERY LEAST[/b] a 25% discount assuming it is priced correctly to begin with. Too many variables. Too many unknowns. [b]PLENTY[/b] of other choices I’m certain. A [b]LOT[/b] can happen in 1 to 2 years regardless of what a great track record the developer may have.
[quote=”bogino”]At the [b]VERY LEAST[/b] a 25% discount assuming it is priced correctly to begin with. Too many variables. Too many unknowns. [b]PLENTY[/b] of other choices I’m certain. A [b]LOT[/b] can happen in 1 to 2 years regardless of what a great track record the developer may have.[/quote]
I agree that there are a number of variables involved. But based on Scott’s question and the basic information he provided as well as his assessment, if I’m reading his question correctly and not reading too much into it, he would feel comfortable with the project and the sponsor.
In my experience a developer willing to give a discount that large (25% or more) on an already completed unit in a complex in construction would make me MUCH more concerned that the risk was he was very short of capital or looking for quick cash before walking away. When something seems to be too good a deal it usually is! Getting a discount that large would make me more concerned that there was a real concern the developer was going to default and therefore make me less inclined to purchase.
[quote=”imxploring”]
I don’t like the idea of a hold back since in my experience it can sometimes lead to legal action when the parties disagree as to whether or not the conditions have been met to trigger release of final funds.
[/quote]
The hold back would be for things like “pool and club house” in the contract but never built. Not for nitpicking….
[quote=”elindermuller”][quote=”imxploring”]
I don’t like the idea of a hold back since in my experience it can sometimes lead to legal action when the parties disagree as to whether or not the conditions have been met to trigger release of final funds.
[/quote]
The hold back would be for things like “pool and club house” in the contract but never built. Not for nitpicking….[/quote]
So they put in a pool half the size you had been told would be built, the “clubhouse” is nothing more than a large cabana with a sign that says clubhouse on it, nothing like the artist drawings that you were given when you bought into the project….the one with the exercise area and tables and chairs for meetings…. and all the beautiful landscaping around the pool and clubhouse in the pictures on the website…. well that’s just mud and some gravel when the project is completed.
So the builder has supplied the items required for you to release the hold back… are you writting out that check?
That’s not nitpicking, nor is it something that can’t and doesn’t happen. Better call that attorney because you’re in for a battle!
[quote=”imxploring”][quote=”elindermuller”][quote=”imxploring”]
I don’t like the idea of a hold back since in my experience it can sometimes lead to legal action when the parties disagree as to whether or not the conditions have been met to trigger release of final funds.
[/quote]
The hold back would be for things like “pool and club house” in the contract but never built. Not for nitpicking….[/quote]
So they put in a pool half the size you had been told would be built, the “clubhouse” is nothing more than a large cabana with a sign that says clubhouse on it, nothing like the artist drawings that you were given when you bought into the project….the one with the exercise area and tables and chairs for meetings…. and all the beautiful landscaping around the pool and clubhouse in the pictures on the website…. well that’s just mud and some gravel when the project is completed.
So the builder has supplied the items required for you to release the hold back… are you writting out that check?
That’s not nitpicking, nor is it something that can’t and doesn’t happen. Better call that attorney because you’re in for a battle![/quote]
Well, off course more details would have to be written in the contract, not just “Pool – yes or no” ! Plus renderings, construction plans and drawings including all the details and materials used. I am a construction person as well and know what needs to be on the list.
[quote=”elindermuller”][quote=”imxploring”][quote=”elindermuller”][quote=”imxploring”]
I don’t like the idea of a hold back since in my experience it can sometimes lead to legal action when the parties disagree as to whether or not the conditions have been met to trigger release of final funds.
[/quote]
The hold back would be for things like “pool and club house” in the contract but never built. Not for nitpicking….[/quote]
So they put in a pool half the size you had been told would be built, th$185ke “clubhouse” is nothing more than a large cabana with a sign that says clubhouse on it, nothing like the artist drawings that you were given when you bought into the project….the one with the exercise area and tables and chairs for meetings…. and all the beautiful landscaping around the pool and clubhouse in the pictures on the website…. well that’s just mud and some gravel when the project is completed.
So the builder has supplied the items required for you to release the hold back… are you writting out that check?
That’s not nitpicking, nor is it something that can’t and doesn’t happen. Better call that attorney because you’re in for a battle![/quote]
Well, off course more details would have to be written in the contract, not just “Pool – yes or no” ! Plus renderings, construction plans and drawings including all the details and materials used. I am a construction person as well and know what needs to be on the list.[/quote]
My point was that no matter how detailed an agreement or contract is it’s always open to the interpretation and manipulation of the parties involved. Just spend a little time reading the cases that come up in the civil courts relating to contract disputes. All those folks thought they had a clear and mutually binding agreement.
Any time you leave the table after a real estate closing with “open” issues you’re inviting trouble. I prefer to close and be completely done with my business and hence my dislike for hold backs or escrow issues that often lead to problems down the road.
Some attorneys seem to forget it’s called a “closing” for a reason…. it’s the CLOSE of business! LOL 😉
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