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, and you have already identified the new construction as one of them. However, other steps must occur before you can close escrow on this new condominium. A Public Report, also called a White Report, allows a developer to sell or lease lots, parcels, or units in a subdivision. In some cases, a developer first applies for a Preliminary Public Report, also known as a Pink Report. This report allows the developer to advertise the project and accept reservation deposits for future sales or leases of lots, parcels, or units within the subdivision.
Reservation deposits taken by a developer under a Preliminary Public Report are fully refundable.
In addition, most financing requires that at least 50% of the total units in the project be sold or under contract. These buyers must occupy the units as their primary residence or as a second home. Also, another issue can arise. Depending on the governing documents, the developer may need to pay HOA dues on any unsold units once closings begin.
Therefore, you should contact the agent who sold your Glendale condo. Let him know you want to cancel the current escrow. Then ask for his help in finding another property. He will likely be glad to assist you with your replacement purchase.
