10 Jun How To De-Risk a Purchase from a Property Developer
When it comes to buying from a property developer, many clients have reservations and rightfully so. There are many a horror story out there of property developments gone wrong. But there are also plenty of ways to mitigate these concerns and ensure that your build – whether it’s off the plan or a completed turnkey project – is a success.
One of the best ways to ensure any development you may be interested in can deliver on what is being promoted is to complete extensive research on the developer and their relationship with the project builder. This relationship is fundamental to the success and quality of any project – no matter how big or small.
Keep reading to learn more about buying from a property developer and how to de-risk this process.
Common issues in development projects
Before you begin, it’s important to understand that a developer is separate to a builder. When a developer looks to procure a new site, they will work with an architect to sketch out a ‘rudimentary mud map,’ which allows them to determine a per unit price for the property.
The developer will then consult a real estate agent to determine whether they’ll realistically be able to achieve those prices. It’s important to note though, that this does not take into consideration the product mix, unit finishes, competition in the market or even who the target market will be.
It’s at this point that the developer will consult a builder for a pre-construction estimate. Understandably, with a lack of detail and knowledge of the possible complexity prior to approvals and potential construction issue drawings and specifications, it can be difficult for a builder to achieve realistic and accurate costings on the development.
If the developer then proceeds on to the design and planning approvals stage on this advice,
the risk is that when the approved construction issue drawings and documentation are finalised, the build cost will be significantly higher than what was originally estimated.
If the developer is not insulated against the higher cost to build with a rising property market, they will need to squeeze the builder to create a wider margin. This can create a difficult relationship between the builder and the developer, with the builder under too much pressure to deliver the service they would have been able to at the start of this project.
Developers can then end up pushing back on the agent when they’re not getting the sales they want, because the price they’ve determined is unsustainable and unrealistic. Invariably the only way to address this issue is to value engineer finishes and lower the specifications out of the development which means buyers get less than what was promoted.
How can this be prevented?
Either engaging a builder early on, or ensuring your developer is part of a joint venture, can prevent this issue altogether. When key parties – agents, developers, architects, builders and engineers – collaborate right from the beginning of a development, there is less room for error and confusion around costs and market value.
Ideally, developers should embark on new projects with a builder as a joint venture, prior to the purchase of the property. This means that the feasibility of the project can be tested before acquisition of the site.
A builder will almost certainly bring added value to a project early on – they will be able to consult on the design, offering cost-effective suggestions and tweaks, as well as advice on how to keep construction costs as low as possible, whilst not sacrificing on workmanship and finishes.
Looking to start work on a brand new home today? Get in touch with us at Linear Design +Construct via [email protected], and we can lead you through both the development and building process.