Real Estate Pre-sales: Advantages and Disadvantages

As promised in our past blog post: “Real Estate Re-sales: Advantages and Disadvantages”, we bring to you today the advantages and disadvantages of real estate pre-sales. 

In the ever-changing real estate market, pre-sales have become an increasingly popular option for those looking to acquire a property. This approach offers buyers the opportunity to secure their future home or investment before construction is completed. However, like any purchasing method, there are advantages and disadvantages to consider before embarking on a real estate pre-sale.

First things first, let’s define what real estate pre-sales are:

Real estate pre-sales refer to the process by which real estate developers offer the sale of properties before they are fully constructed or completed, or even before construction begins. Buyers have the opportunity to acquire a property in the early stages of development, usually at a lower price than the market value once the project is finished. During the pre-sale, buyers may sometimes choose from different options and customize certain aspects of the property, such as finishes or additional features. It is a way to secure a property before it becomes available to the general public, with the hope of obtaining a higher appreciation than purchasing a ready-to-move-in unit.

Initially, they are released to the market in their “Friends and Family” stage, offering the developer’s and/or marketer’s sphere of influence the opportunity to access the lowest price ever seen in the particular real estate development, theoretically. As the sales process progresses and based on market acceptance, the developer will decide on the go the price increases for the remaining units in their subsequent price lists, either after a certain number of units sold or based on the time elapsed in the market. Theoretically – and I cannot emphasize this enough – the earlier you buy your unit in the pre-sale process, the better opportunities for returns you will have.

However, not everything is rosy in the world of real estate pre-sales, and let’s now analyze the disadvantages:

1. Environmental Impact: Feeling the heat, aren’t we? Well, the real estate industry has “something” to do with it. Buying pre-sales increases the demand for new properties, which, in turn, will increase supply and construction. New construction means environmental impact, and the consequences, well, it’s unnecessary to mention them. I mention this first because it concerns ALL of us.
2. Uncertainty about the Final Outcome: During a pre-sale, buyers must rely on the developer’s vision and promise regarding how the property will look and feel once it is completed. Although plans and mock-ups can be provided, there is always a possibility that the final result may not meet expectations, leading to disappointment or dissatisfaction.
3. Project Completion Delays: Real estate projects often – and more often than we think – face delays due to various reasons, such as construction issues, legal procedures, or financial problems. This can be frustrating for pre-sale buyers as they may have to wait longer than initially expected to inhabit or use the acquired property.
4. Risk of Changes in Financial Circumstances: During the construction period, buyers’ financial situations may unexpectedly change. For example, they may face economic difficulties, job loss, or other changes that affect their ability to meet agreed-upon payments. This can generate financial stress and jeopardize the acquisition of the property.
5. Lack of Control over the Construction Process: As a buyer in a pre-sale, you have no direct control over the construction process. This means you cannot personally supervise the progress of the work or influence decisions related to design or the quality of materials used. You are heavily dependent on the reputation and competence of the developer to ensure that the project is carried out as promised.
6. Possible Changes in Market Conditions: During the construction period of a pre-sale, market conditions in real estate can and will change. Property values can fluctuate, which could affect the potential appreciation of the property acquired during the pre-sale. This entails a certain degree of risk in terms of investment and expected returns.
7. False Promises: On countless occasions, I have seen developers offering and, even worse, “guaranteeing” surrealistic rental capitalization rates, investment returns, and appreciation percentages, with invasive and aggressive sales strategies. The end result? Disappointment and a poor investment. Let me tell you something, and engrave it in your memory: THE FUTURE CANNOT BE GUARANTEED. So if you are offered guarantees regarding the future financial conditions of your potential pre-sale purchase, RUN!

Now, let’s analyze the advantages together, because they do exist.

1. Lower Prices: One of the main advantages of real estate pre-sales is the possibility of acquiring a property at a lower price compared to the market value once the project is completed. Developers often offer discounts and special promotions during the pre-sale stage to attract buyers.
2. Customization Opportunity: In some cases during the pre-sale, buyers often have the opportunity to customize certain aspects of the property, such as finishes, colors, additional features, or space distribution. This allows them to create a home tailored to their preferences and personal taste.
3. Increased Availability of Options: During the pre-sale stage, buyers have access to a wide variety of unit options within the real estate project. They can choose from different sizes, locations, views, features, and prices, providing greater flexibility to find a property that fits their specific needs and preferences.
4. Potential Appreciation: If the real estate market experiences growth during the construction period, pre-sale buyers can benefit from the appreciation of the property before its delivery. This means they could make a profit if they decide to sell the property once it is finished or use it as a profitable investment.
5. Early Access: By purchasing a pre-sale, buyers have the advantage of securing a property before it is available to the general public. This gives them the opportunity to secure a prime location or a property in a high-demand project that could quickly sell out once officially launched on the market.
6. Financial Flexibility: Opting for a real estate pre-sale allows buyers more time to arrange their financing and prepare the necessary payments. This can be especially beneficial for those who need to plan their long-term investment or require obtaining a mortgage loan in advance.

As a real estate professional, my inclination will always be to suggest considering options available in the resale market because, from my perspective, there is nothing better than “what you see is what you get.” However, there will always be pre-sale projects that meet the necessary requirements for me to feel the tranquility and confidence to recommend them to you.

If you’re unsure which option is best for you, contact us today and schedule a consultation so that together, we can determine the path that will bring you the greatest benefits.

And what do you think?

Until next time!