NEW HOME SALES REPS WON’T TELL YOU
DC new home sales and marketing firms may overpromise on settlement dates to promote sales, then underdeliver on timelines and more. Worse, they won’t disclose that you’re never going to settle until you’ve lost time, money and patience.
Promises, Promises
New home sales representatives may quote unrealistic projections for project completion and delivery to spur sales, leading to fallout when buyers are stretched to the limit with long-delayed closings.
Revised promises, claims of being ‘almost there!’ or ghosting you when you press for answers won’t help when your quoted delivery date comes and goes four or five times as rates rise, alternatives become more expensive, and your current living situation becomes untenable.
And what if the developer decides not to deliver at all? It happens, and buyers are not adequately compensated for their purchase investment.
Buyers assume risk in contracting to purchase pre-construction homes. Learn how to get informed, stay informed, and minimize loss.
Press For Facts, Reject Hyperbole.
It’s advantageous to have as much information as possible when you’re purchasing a pre-construction home in Washington DC, and to separate facts from sales speak.
New construction timelines are not unbreakable codes, universal mysteries or transcendental equations. Penciling costs and scheduling is part of the initial development process. Sophisticated software and services exist to handle it, and experienced developers already understand the process and potential pitfalls.
So when salespeople are vague, unknowledgeable, or spouting wishful thinking instead of verifiable intel, it’s necessary to take it upon yourself to flesh out details.
Important Factors
Settlement Dates
Sales & marketing companies review the goalposts when negotiating for the right to sell the project. They read in their senior sales staff, who make it their business to know what the delivery timeline looks like at various stages, if only because settlement is when they’re paid.
If the project is just beginning construction and is projected to take 8 months or longer to complete, there are many variables and outside influences that make delivery projection more difficult. If the developer’s financing or underwriting guidelines require sales milestones, it is more difficult still.
The sales team incurs some liability if they quote hard dates that end up being far off the mark, so representatives are coached to provide a general timeline, but caution that they can not guarantee it, or be more specific.
Accept the explanation, but try to obtain written agreement that you’ll be provided with informative email updates at key points during both the construction and sales processes that impact the delivery timeline. Define those points explicitly, along with the specific information required.
Begin your own due diligence. Start tracking your timeline with the ‘outside date’ (the contractual deadline by which the developer must complete and deliver or refund your deposit) as a guide. This should be outlined in your Public Offering Statement. Then, investigate these considerations:
Key Factors Likely To Impact Your Delivery Date
Construction timeline
Project Compliance FNMA
Certificate Of Occupancy
Pre-Sale Requirement
Your location in the building
With this information, you can build your own estimated delivery timeline. Determining your location in the building is easy, it’s your floor level and unit number. Getting the rest of the information will not be easy. The word ‘transparency’ is not a favorite of developers and sales and marketing firms. The best time to push hard for this intel is during your 15 day right of rescission period.
General Timelines
Generally, the timeline for new condos development depends on the size, scope and property attributes of a project. From land purchase to design, zoning, ANC, HPRB and/or review board approvals if needed, permitting, environmental issue mitigation, razing, demolition and the actual constriction process including any design changes, variance needs and inspections. The construction timeline for a new condominium can take anywhere from eight months to five years or more. Some DC projects have stretched past a decade in the pre-construction phases.
Developers should know at sales release time if any of these factors are likely to cause delivery setbacks. You may not get a forthright answer, but it is worth asking the question:
“Are there any factors related to this project that might extend the timeline and delay delivery?”
The construction timeline for new condos can also be impacted by unforeseeable events such as the Covid pandemic in 2020-21 that slowed supply and construction for several years.
Potential Financing Considerations
FNMA Pre-Sale Requirements
Even if the condominium construction is completed and units are ready to deliver, the sales team and preferred lender may not be. In many cases, Fannie Mae sets pre-sale requirements the developer must meet before deliveries can commence.
For new or newly-converted condo projects, Fannie Mae guidelines require at least 50% of the total units (or the subject legal phase) must have been conveyed (sold) or be under a binding contract for sale to principal residence or second home purchasers before loan closings and settlements can begin.
There is no presale requirement for a 2-4 unit condominium.
FNMA Pre-Sale Link
Do all units count toward the 50% presale requirement?
Doesn’t Count: Investor Units
Does Count: IZ Units or ADUs
FNMA Waivers
Your developer and lender may be able to negotiate a waiver to allow 30% pre-sales instead of 50%. For project requirements to be eligible for a review waiver, see B4-2.1-02, Waiver of Project Review .
Refer to the Eligibility Matrix for the maximum allowable CLTV and HCLTV ratios. (For example, a mortgage loan for a unit in a PERS-approved project can have a CLTV ratio up to 105% if it meets the Eligibility Matrix and Community Seconds requirements.)
The CLTV and HCLTV ratios in this column align with the maximum CLTV and HCLTV ratios that are permitted for projects outside of Florida, as described in B4-2.2-01, Limited Review Process.
B4-2.2-03, Full Review: Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects. This section contains information on the Full Review of units in new and newly converted condo projects, including:
Additional Requirements for Units in New and Newly Converted Condo Projects
Condo Project Legal Document Review Requirements for Units in New or Newly Converted Projects
Individual units in new condo projects must be available for immediate occupancy at the time of loan closing. If the project is part of a larger development, and the unit owners are required to pay monthly assessments of more than $50 to a separate master association for that development, lenders must review the overall development plan for the master association to evaluate the acceptability of the project.
The overall development plan of the project must be reviewed and the following must be acceptable:
consistency of future and existing improvements,
time limitations for expansion, and
reciprocal easements between legal phases.
For projects (or the subject legal phase) that are only substantially complete rather than 100% complete, lenders must determine that acceptable completion assurance arrangements that guarantee the future completion of all project facilities, common elements, and limited common elements have been provided. These assurance arrangements may include
cash deposits,
letters of credit,
assignments of certificates of deposit, or
assignments of other assets that can be easily converted to cash.
Similar arrangements must be provided to support assurances against construction and structural defects. The assurances must:
protect each unit against defects that become apparent within one year from the date of its settlement, and
cover all common facilities for one year from the date on which units that represent at least 60% of the votes in the HOA have been transferred.
The developer or sponsor should provide for and promote the unit owners’ early participation in the management of the project. The project must meet the condo project legal document requirements in the following section.
Certificate Of Occupancy (CofO)
For new buildings, there are three (3) CofO subsets:
Conditional
Completion of core and shell
Establishment of a new occupancy
Freddie Mac
Freddie Mac also requires at least 50% of the total units in the project (or at least 50% of the sum of the subject legal phase and prior legal phases) to be conveyed or under contract to purchasers who will occupy the units as their Primary Residences or second homes.
Location
Developers generally deliver from the ground floor up. If you’re on the top floor of a new condo building, you may be at the back of the queue for walk-through dates and settlements unless the developer has decided to reverse the order. Other factors can change this; for instance, buyers who may be traveling internationally during the time they were to settle in order, or those with urgent need for another reason, may be moved ahead in the schedule.
Project Modification
On occasion, a developer may decide to change course and convert the project from a for-sale property to a for-lease property. Unfortunately, the developer is likely to keep this intention quiet as they complete the necessary regulatory steps. Even the sales and marketing firm may be kept in the dark.
In this event, the developer enacts the section of the contract commonly known as ‘Termination Option,’ notifies the sales and marketing team of the decision, requests that they cancel sales and withdraw active listings on the MLS. Buyers are compensated only as the contract section states, along with the release of their Earnest Money Deposit. This is a worst-case scenario for buyers, who may have been under contract for a year or more and find themselves in a completely different market when they are forced to start their home search anew, and at a loss for all mortgage and inspection-related fees.
So, if sales seem to be lagging, sales representatives are keeping mum, walk-throughs and inspections aren’t being scheduled, and the developer is not as communicative and/or productive as would be expected when a building nears completion, start asking questions and digging into SCOUT to view unusual activity such as additional zoning reviews, etc.
An example of this is the Tribeca Condominiums (dba prior to termination), which had just met pre-sale requirements in late 2021 but developers decided to convert the project to rental apartments. All buyers, who had been under contract for as long as 13 months, had contracts canceled. They saw mortgage interest rates rise four times during that period, home prices rose, and also they lost money on inspections and lender fees. Losses can be significant and developers do not compensate for them.
This can also happen in the reverse, when the developers of a for-lease project decide to convert it to condos, as occurred in 2003 at Gallery Place in downtown DC. The 192 unit complex was well into construction above the Metro station in Chinatown when developers decided to make the switch due to a weakening rental market and glut of new rental projects planned for the neighborhood.
Mixed projects with one association and significant retail space can also pose a warrantability problem.
Before You Sign
Arm yourself with information as early as possible in the pre-sale process. The sales team is never so motivated to provide answers as they are when they’re trying to get a contract signed. Key: Get responses in writing. Have your agent email a list to the sales team and ask that the developer reply in writing:
Are the project units all market rate? If not, how many ADU/IZ units are there and how/when will they be sold? Will a different sales team be handling these sales? Will those sales count toward the developer’s financing requirements, if any?
Do you cap investor purchases? If so, what’s the cap? How many investor units are sold todate?
What percentage of sales, if any, must be achieved to deliver units? Did the developer request and receive an FNMA pre-sales requirement waiver? (*Confirm the developer’s response with the project’s preferred lender, also. You may get different replies!) Confirm the number of units already sold that qualify for the pre-sale requirement. Will the sales team provide written updates on this as requested?
What is the target sales pace (number of units to be sold monthly/quarterly)?
If it’s necessary to lower prices to spur sales pace, will existing contract sales prices be adjusted down commensurately, or other compensation be provided?
Are there any environmental, supply chain, financing, approval or other issues now affecting materials delivery and/or construction? If so, will they alter the delivery timeline?
How many projects does the developer currently have in development?
When do you expect to have condo documents available to buyers?
What is the term of your contractual right-of-rescission period?
What is the contractual period the developer has to complete the project and to deliver units? Are those deadlines different from one another?
What is the possibility that the developer will convert the project to for-lease if sales don’t go as projected?
Will any of the project’s units be leased or retained by the developer?
What is the compensation offered buyers if the developer doesn’t deliver? Is it negotiable?
With few exceptions, you should expect that the timeline for delivery of your new construction home will be longer (sometimes much longer) than projected by the sales team when you purchase.
This expectation will allow you to remain calm through the construction process and plan accordingly for rate locks, moving arrangements and rental extensions.
Disclaimer
We compile this information to make our buyers aware and to provide an easy review. If you have questions about FNMA rules & regs pertaining to new condo pre-sale requirements, please contact your lender. Also be aware that this information may be updated by FNMA at any time, and that there is no guarantee the latest version of requirements is displayed here.