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Developers Try to Limit Speculative 'Flipping'
Another condo complex is under construction in Washington, where investors make up 15 percent of all multi-family condo project buyers. For developers, limiting investors is a double-edged sword.
(By Larry Morris -- The Washington Post)
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Earl said his firm requires higher down payments for investor buyers, typically 10 percent rather than 7 percent. It also requires investors to be pre-approved for financing at 2 percentage points above the current market rate, as a hedge against interest rates rising before construction is complete.
Montagne said his firm has also increased deposit amounts over the past six months, now requiring 5 percent down, and another 5 percent when the roof goes on the building.
Investor Dubin said one developer he knows is asking for 5 percent of the gross sales price if a buyer sells a home within two years of signing the purchase contract.
Bozzuto said his firm tries to limit the number of investors in a project to 15 percent of all buyers. He said Bozzuto Homes has begun putting a clause in its purchase contracts that says that Bozzuto can buy back a unit at the same sales price if a buyer attempts to sell the home prior to the second anniversary of the date of the purchase agreement. (Usually that's sometime during construction.) His company is also requiring buyers to sign a document that states they will go to closing.
"We always worry how legally enforceable any document like that is, though," Bozzuto said. The legality of most of these restrictions has largely not yet been tested.
Besides relying on those formal barriers, developers have also developed a nose for sniffing out investors.
"They're always the first in line," said Montagne. "They always want to buy the least expensive units. You've often seen their names before on other jobs."
However, he said, if buyers agree to all his conditions, and provide pre-approval letters and statements saying they will be owner-occupants, "You basically end up signing the contract anyway. Because really, what are you going to do?"
