Ask Phyllis: a blog series of frequently asked real estate questions.
Buying a brand-new condominium
Dear Phyllis,
I sold a Glendale condo because the association was poorly run and always had special assessments. I did a 1031 exchange and put the sales proceeds with an accommodator. One day, while driving around the Foothills, I saw new condos being listed for sale. I signed the paperwork to buy the unit. Before I knew it, I put down several thousand as a reservation. I didn’t even think about it, but I didn’t use the agent who sold my Glendale condo, and he was upset with me. He did a great job and had every right to feel slighted.
The new development does not have the complete legal paperwork to open escrow. It’s already been three months. I am afraid I may not be close enough to meet the deadline for the 1031 exchange. I want to cancel, but I don’t know whom to ask or how to proceed since I can’t seek advice from my original agent. Additionally, will I receive a refund of my initial reservation amount?
Torn
Dear Torn,
You can identify three properties. You have already identified the new construction as one. However, other things need to happen before you can close escrow on this new condominium.
The Public Report, also known as the White Report, authorizes a developer to sell or lease lots, parcels, or units within a subdivision. Sometimes, a developer may apply for a Preliminary Public Report, also known as a Pink Report, which will allow a developer to advertise and take reservation deposit monies for the sale or lease of lots, parcels, or units within the subdivision.
Reservation deposits taken by a developer under a Preliminary Public Report are fully refundable.
In addition, to qualify for most financing, at least 50% of the total units in the project must have closed or be under contract to purchasers who will occupy the units as their primary residences or second homes. The other wrinkle is that depending on the governing documents, once units start closing, the developer may need to pay HOA dues on the unsold units.
I suggest you contact the agent who sold your Glendale condo and let him know you want to cancel the current escrow and get his help finding another property. I am confident he will be glad to help you find your replacement property.
