Folding the Big Tent
The last thing developers want to do is compete against their initial buyers as they close out a building.
“We have clauses in all of the contracts that say you can’t market, advertise, list for sale, put on the [multiple listing service], or in any way promote without express written consent of the developer, which can be unreasonably withheld,” says Lamondin of Cornerstone Premier Communities. “In some, if I’m out and I’ve sold, they can flip if they want. In others, we may have a second building we want to sell.”
In all Related sales, Roche won’t sell more than two units to any one person. And with the second unit, the Related executive makes a practice of personally investigating a buyer’s banking and credit history to ensure he or she can close the deal. “I don’t want to have a guy in my Related portfolio that doesn’t have the financial means to close the transaction,” Roche says. “He may be walking away from 10 deals.”
In South Florida, things have gotten so heated that people are forming limited liability corporations to purchase units. In many cases, real estate agents will come to an opening with a specific strategy to tie up the best units first. “The [real estate agents] will get buyers to pay commission and get powers of attorney and they’ll write up [the contract] first,” Kirschner CEO Kim Kirschner says. “We don’t let someone come in with 20 powers of attorney and mobilize 20 of our contract writers. If we don’t give the end users a chance to buy on the first list and get ahead of the investors who are cherry-picking the best units, the end users are priced out.”
Another way to try to close the investor door is to ask for a down payment of 20 percent or more. “If the deposit is strong enough, I don’t think you’ll have a lot of investors walking away for a 20 percent deposit,” Patterson says. “These are optimistic people, but they’ll definitely walk away from a 5 percent deposit.”
Others include provisions that prohibit the investor from flipping a condo contract for a premium to a new buyer before the original investor has even closed or that require an investor interested in selling a unit to give the first right of refusal to the project’s developer.
But William Rich, vice president of Delta Associates, questions how much some developers really want to enforce these provisions after his own experience buying a condo in the Washington metro area. “The developer had language in the contract to discourage people from flipping too early,” he says. “But I was finding newspaper ads in the Washington Post and other places for units for sale [in his building] when they’re not supposed to do that. They do have the language in there, but sometimes the developers don’t enforce their own rules.”
