New Const SFH - How to structure sale prior to completion?

Question

Hey BP, My first investment property is an empty lot that my partners and I our building a new construction SFH.

We plan to list it prior to completion, within the next week or 2. It is currently framed out, windows, doors, and shingles will go on early next week.

I am looking for some guidance on how you would structure the sale prior to the home being complete. What percentage of the sale price should we require down? Or should we structure the deal with a percentage down and then additional payments as items get complete? Others ideas?

Thanks in advance!

Jeff

Skyler Smith · Answer

Hey Jeff,

In my area it's typical for a spec builder to ask for something like 3% as an "additional earnest money" or some type of non refundable building deposit, but only if they are customizing items on their own. Here a spec build sale doesn't close until it receives a certificate of occupancy, or when it's reached substantial completion.

Jeffrey Turner · Answer

@Keith Bloemendaal@Karen Margrave@Brad H.

Thanks for the all advice!

After this thread, we plan to require 3.5% ($10,000 on 279K) down and then money upfront for upgrades.

We are going to list it ourselves for a few weeks and see what type of interest we can generate.  If we do not see traction, we will list with an agent. Drywall should be finishing around that time as well.

In the meantime we plan to scout out potential agents in our area for this and future deals.

Karen Margrave · Answer

@Jeffrey Turner  More than likely your buyer will be getting a loan, therefore; asking for progress payments won't work. That's fine if you are doing a contract job for a client, but not on a build to suit. Also, you aren't going to get too big of a non refundable deposit from someone without having some kind of track record of your own, it's too risky for the buyer.

I do agree however that any upgrades should be paid for upfront, as a different buyer may not like the choices.

As to the agent or not agent. We are licensed agents ourselves, and list on MLS. However; we have also listed with other agents when the property we were selling wasn't within what we specialized in. For instance we used to build mid range houses, and commercial projects. When we were selling a high end house, we listed with an agent with connections in that market, and that focused on advertising to those buyers.

As @J  Scott mentioned, most buyers are working with agents. Another thing I learned while managing a RE office early in my career and doing all the advertising, rarely did the people buy the house they called on. Good luck!

Jeffrey Turner · Answer

@Skyler Smith@J  Scott

Thanks for the quick responses guys. We are pretty comfortable with the construction side of the business, we are about to learn a lot real quick what it takes to close a deal.  Our plan is to sell it buy owner...so we are in for some on the job training.

Hopefully through this site we can minimize our mistakes!

Thanks again!

J Scott · Answer

Agreed with Skyler.  Get a small non-refundable deposit (1-5%) and then only ask for additional payments prior to closing if you are providing customized finishes or upgrades to the buyer.

Joseph R. · Answer

Maybe in other parts of the country 1-3% works but if you start customizing a spec for a buyer with say 2% down you can get yourself in big trouble if they walk......we try to get 10% down on our specs

Karen Margrave · Answer

@Jeffrey Turner  If you're going to premarket yourself, get an ad on BP in Marketplace since you are a pro member. Also, you can put a free ad on Postlets, and it syndicates to lik 300 different sites. I've pre-sold a house doing that before.

I'd also put Will cooperate with agents, X% to Selling Office, because like it or not, most buyers are working with agents, not always, but most of the time.

Then see what happens.

Brad H. · Answer

I think using flat-fee MLS is the way to as a builder, especially just starting out. You know the home better than anyone. It's really dependent on your own situation.

The value in the MLS is getting the home out in front of buyers. I just don't have a need to give 2.5-3% to a listing agent.

Keith Bloemendaal · Answer

Get a good realtor, maybe wait until drywall to list, but get a good realtor. It will cost you more than the 5%-6% (I pay 5% as a spec builder) if you try to sell on your own. My homes are in the mid $300k to low $400k and I require a non refundable builder deposit of $10-$20k, plus 100% of any upgrades paid up front. Period.

Jeffrey Turner · Answer

@J  Scott

Thanks for the insight, I guess was thinking like an investor, not the everyday buyer we are targeting who uses traditional methods to find houses. First investment optimism might have played a part too, I think we are building a great property and someone driving/walking by will fall in love and buy it...might need to come back to reality before the house is sitting for months.

I will definitely reevaluate my selling strategy. Thanks again.

New Const SFH - How to structure sale prior to completion?

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