Everything You Need to Know About Purchasing Pre-Construction!

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Whether you’re looking for a place to hang your hat, or an alternative to investing in stocks, a pre-construction condo can be a fantastic means to get your foot in the market or take advantage of existing home equity!

Why Buy Pre-Construction?

The most obvious benefit to purchasing pre-construction is that in exchange for taking on some risk, you’re likely going to spend less than on its resale counterpart. You’ll also have more choice in unit, and also avoid the dreaded bidding war! Being able to select your own floorplan and finishes, and knowing that you have a Tarion warranty to rely on, are additional reasons that end-users and investors alike turn to pre-construction. A pre-construction purchase is a passive investment – you’ll likely reap the rewards of a real estate market that has consistently trended upwards, and you don’t have to deal with tenants along the way. As long as you select a builder with a good reputation, it can be a safe place to park your money and you will historically see really solid returns.

Are There Any Risks with a Pre-Construction Purchase?

We’d be remiss in not mentioning the risks associated with any pre-construction home. These include having no control over construction delays, having your money locked in for an indeterminate amount of time, and the hefty deposit required up front. You’re also gambling on what the mortgage rates will be in the future, as opposed to what you would qualify for in the present.

Note that as the owner of a pre-construction home or condo, you can’t technically sell your unit before it is built and registered, however you can sell the contract (this is called an assignment).

What Does the Process Look Like?

Once you’ve identified a project that piques your interest, registered for information and decided that you want to move forward with a purchase, you’ll fill out and submit a worksheet – a form submitted to the builder along with identification. This shows the builder that you are interested in securing a suite.

Once a suite is allocated you will be advised of a signing date, where you’ll sign an Agreement of Purchase and Sale, and submit your first cheque. Unlike a resale purchase, by law you will have the benefit of a 10 day ‘cooling off period’ where you’ll have time to arrange for financing and enlist your lawyer to look over everything on your behalf! If you find anything you are not comfortable with, you’ll be able to walk away from the deal with your deposit cheque in hand.

Note that when purchasing pre-construction, you will be subject to a payment schedule that amounts to a 20% down payment within your first year of ownership. A sample payment schedule can look like:

  • $5,000 with the offer
  • 5% of the purchase price minus the initial deposit within 30 days
  • 5% of the purchase price within 60 to 90 days
  • 5% of the purchase price within 90 to 180 days
  • 5% at occupancy

Closer to your occupancy comes the fun stuff – typically, a one on one consultation with a décor representative to select your finishes and any upgrades. Once built, you’ll have a pre-delivery inspection where you’ll be guided through a comprehensive inspection of your suite.
Pre-construction purchases are also subject to something called ‘interim occupancy’. This is the period prior to final closing where you’ll receive the keys for your suite, however, ownership has not yet been transferred from the builder. Be aware that during this period (before your mortgage kicks in) you’ll be financially responsible for a monthly interim occupancy fee comprised of interest on the balance due, maintenance fees, and property tax. Upon the final closing whereby, ownership is transferred into your name, your mortgage payments will begin and you will pay the final closing costs.

Think a pre-construction purchase could be the right choice for you? We’re here to guide you through the process. Contact us today to learn more!

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