This is a REAL ad!

Developers are increasingly worried that buyers may be trying to cancel their contracts for either legitimate or frivolous reasons. Over the last four years or so, the Miami area has enjoyed a renaissance and real estate boom. During that time, reports claimed that 60,000 to 70,000 condos were planned or under construction. In spite of the recent “bust,” the reality today is that most of these projects have survived and will be delivered in the next 18 months. Many people are realizing, to their horror, that they can’t afford to close or don’t want to.

Under state law, a buyer can cancel a contract if a “material” amendment is made to the condominium documents that “adversely” affects the buyer.

The two most important words in the above sentence are, you guessed it, “material” and “adversely.” What may be “material” or “adverse” to you may not be so to a judge or jury.

The reason why this is Miami’s touchiest subject right now is because developers are concerned that buyers in general don’t want
to close because of the South Florida housing downturn. Since real estate is governed by the law of supply and demand, one can just look up at the Miami skyline and deduce that supply totally exceeds demand and that the majority of the buyers in these towers are speculators. “Oversupply” and the “new South Florida condo market” are the flies in the ointment here that no one counted on changing, and changing so rapidly.

I find that this is really about the speculators who don’t want to keep their units. When these buyers made their initial purchases, they were likely sold a pretty picture on how they wouldn’t have to close, and that the project was going to start a “re-sale” office to help speculators off-load their condos. The developer’s reps projected a enormous gains;basically, a scenario of all of the benefits with none of the risks!

I know a project that had material changes to their docs, which automatically gave buyers the chance to get their money back and rescind the contract. This development basically lost all of its buyers, and now the developer is looking at changing uses to either a rental tower or a hotel.

What should you do if you can’t or don’t want to close on your Miami pre-construction condo? Here is some advice:

1. Check the last date signed on your contract with the developer. When did it become an executed agreement by all parties? By state law, the developer has to deliver the unit within a specified time from the date you signed the contract. If the developer doesn’t finish the project within the time allowed, and you haven’t signed any extensions or new contracts that “re-up,” (make it a new contract with a new date), you may be able to rescind on that fact alone.

1. Call the developer. Tell him that you can’t possibly close on the unit and ask to be released from the agreement. I did this with one of my clients and since he bought a very desirable unit very early in the game, the developer was more than happy to take the condo back because he could make a few hundred thousand more dollars on it. This is a long shot, but worth a try. This developer was very well funded, met his pre-sale requirements, and the project was a huge success. If you feel that your project hasn’t been that successful, this approach is worth a try.

1. Check for any last minute changes to the condo docs and/or operating budget. Right before closings begin, developers will file any last minute changes to the condo docs. There might be “material” change that is “adverse” to the buyer.

1. Hire a good real estate lawyer. I am shocked beyond belief by how many people purchase these sometimes multi-million-dollar condos and never run the deal by their attorney. I make sure my clients read their contract with the developer and have their lawyer review it before they sign it. As I said in my last post, read your condo docs!

Getting out of your contract is NOT going to be easy, so at the end of the day be prepared to close or lose your deposit.

I was interviewed this week by Fortune Magazine on the Miami Condo market. While going through the market, and listings in certain buildings, a few things became apparent to both me and the reporter, besides market statistics. The most glaring revelation was that most of the listing agents had incorrect information in the MLS for the property, including taxes and maintenance, which is the reason for this post.

When I am working with a buyer client, and I select properties for them, the first thing I do is ‘eyeball’ the listing for correct information.  If I don’t feel it is right, I check it out PRIOR to giving my buyer client the information. This saves my buyer client from lots of surprises, problems and disappointments down the road.

Here is a list of questions that you should initially ask when considering a unit in a condo building:

What is the pet policy?  Many times I have heard of people, who have not been able to purchase a condo, because they could not get their pet approved by the condo association.  If condos allow pets, many of them have restrictions such as number of pets, weight restrictions and breed restrictions. If you are not a ‘pet friendly’ person, you may not want to live in a building that allows pets.  It amazes me how many agents do not review the pet restrictions prior to writing an offer, only to find that the condo associations rules do not match the buyer’s needs.  I always check to make sure the rules are a match for my clients’ needs, BEFORE the offer is written.

What are the maintenance fees/common area charges?  Many Miami condos have been on the market so long, that the listing agent for the property has not updated the fees. We found an instance where the monthly fee was OVER double what was stated in the MLS.

Are there any pending/current assessments in place?  If I am showing a building that I am not familiar with, which is rare, I will call the condo association and ask PRIOR to showing.

Are any future assessments being discussed? This is a big one, because there may be a big assessment ‘in play’, and that would not make for a happy new owner.

Is the building in any sort of litigation? It is very common for new buildings to litigate with the developer over the final delivered project.

Are there any contractor liens on the building? Unfortunately, this is common with less reputable developers. It is very hard to get clear title (but not impossible) when there are ‘clouds’ on the title. Liens would also make it trickier to obtain financing.

Are banks lending on the condo building? Financing options may be limited in a condo hotel, or in a new construction where the pre-sale requirement has not been met.  A lender may ‘flag’ or stop lending in the building because they have pending litigation or suspicion of mortgage fraud. More financing programs are available in buildings that have been FNMA approved.

Read your Condo Documents! Many contracts stipulate that the seller must provide the buyer with the docs within three business days from the effective date of the contract. By Florida law, there should be a sheet of ‘Frequently Asked Questions’ that is usually supplied with the Condo Documents. If you do not have FAQ’s, ASK FOR IT! If you are purchasing a re-sale condominium (not from the developer) in the State of Florida, you have three business days from the time you receive the Condo Docs, to cancel the contract.

Always request a Seller’s Disclosure. I cannot tell you how many times I receive offers on one of my listings without a request for the Seller’s Disclosure. By Florida Law, a seller must disclose any information which materially affects the value of the real estate, and this is done via the ‘Seller’s Disclosure’ or ‘Latent Defects Rider’ form. In the State of Florida, you have three business days from the time you receive the ‘Seller’s Disclosure’ to cancel the contract, based on the information in the disclosure.

Unfortunately, I hear that many of these types of oversights happen all the time. The majority of these problems can be averted with a little COMMON SENSE. It is true what they say, ‘Common sense is not all that common’! I feel badly for buyers who get caught up in the excitement of buying Miami real estate who don’t have the guidance, expertise and COMMON SENSE of a good agent on their side.

Here is a free Miami Condo Guide with more tips on buying a Miami condo.

Disclaimer: Legal information is NOT legal advice.