What to Consider When Buying a Presale Condo
Buying a presale condo is a entirely different process than buying a resale. When you purchase a presale you are essentially buying a product that is not yet built. In order to purchase, you enter into an agreement directly with the developer. Your decision is based on the floor plan and any other marketing material the developer provides. They are selling you a concept and a promise to deliver a home that is as described.
Here’s a few things to consider before buying a presale:
Study The Floor Plan
This is the most important aspect of your new home. Dive into the plan with your realtor, friends, family and get everyone’s feedback on how things are laid out. Architects are pushing boundaries by designing uniquely shaped glass towers, beautiful from the outside… what about the inside? Is the living room a rectangle/square shape, or are you dealing with a row of curved windows and now need a custom U-shaped couch? You can change decor, but you can often not change the size and shape of your new home.
Think About Exposure
Where your condo is located in the building is also vitally important. Is it at the end of a long hallway? Is it south facing with lots of light? Is there another tower that will be built and block all of your view? What about rooftop HVAC systems and curb side BC Hydro boxes that may be within your view? Study the architectural drawings and strata plan to minimize your risk of any unwanted surprises. Your REALTOR® should point out design concerns you may not have even considered. Working with a real estate professional is worth its weight in gold. What a perfect segue into my next point which is…
Use a REALTOR®
The sales centre team works for the developer, not you. They are there to show you the product and can generate the contract but they are not there to advise you. Having your own REALTOR® on your side protects you as a consumer. We work for you! REALTORS® have the skills and professional eye to lead you into the right home for your specific needs. Experienced REALTORS® know about presale projects before they are offered to the general public. Not every REALTOR® will have priority access, so make sure you’re working with one that can get you in during the private preview period. This will allow you to pick out to best floor plans at entry level pricing. Some projects are highly competitive and sell out very quickly. It’s key to find a REALTOR® that is on the ball with a good reputation and has a solid relationship with the developer and sales team. Relationships are important in real estate. Choose an agent you feel confident will best serve your needs.
Size of Unit
It is prudent to compare the actual strata lot square footage on the strata plan with the developers marketing material floor plan. The strata plan may have a smaller size than what is being marketed. For example, the strata plan may read 905 square feet…while the marketing material states 1,005 square feet. This can make a big difference in a small space. It’s especially concerning when you’re spending say $1,500/sq ft and receive a 100 sq ft less, that’s $150,000 of product. The developer is contractually allowed to shave off some square footage, within the parameters they have outlined. In some cases I have seen it has high as 10%. It is important to understand the wording in the contract and set expectations accordingly.
Recession Period
When buying a presale there is a statutory 7 day right of recession period. This means for whatever reason you would like to back out of the contract you may do so during this time. During the recession period all due diligence is performed. You should review the contract and disclosure documents in more detail with your REALTOR®, lawyer and accountant. Study the strata plan, floor plan, read the official community plan (OCP) for the area and fully understand what you are purchasing. After the recession period is complete and deposit is paid, it is a firm and binding deal and you must complete the contract.
What About Deposit and Financing?
You don’t pay a mortgage until your unit is built and complete. Depending on the scope of the project, builds take between 2-6 years to complete. This means you won’t obtain financing until a few months before the completion date itself. It’s impossible to know what your interest rate will be at that time or if you will be in a financially stable position to take on said mortgage. This is a risk that needs to be discussed and strategically planned out with your mortgage broker.
Presale projects bank on real estate prices continuing to increase over the construction period. However, on the flip side there is a chance the market may take a downturn. Know what kind of long-term outlook your particular market is facing, including economic factors and policy changes that may affect you at closing. We can’t predict everything but being aware of these risks is part of being properly prepared.
Deposit wise, most projects require a total of between 15-20% down. Sometimes there will be promos of less but in general expect to pay 20% down. This deposit is broken down into several over time. The timeline varies based on the project but roughly speaking it looks something like this…$10,000 upon signing contract, increased to 5% down within 7 days and 2-3 more 5% deposits over X amount of months/years. Be sure to check your disclosure statement for exact dates and amounts. Note: a developer might only require a small % down but, your mortgage qualification might require a higher % down at completion. It’s key to talk to a mortgage broker about your potential qualification numbers right at the beginning of this process.
5% GST and property transfer tax are calculated and due upon completion. Those two taxes are above and beyond the agreed upon final sale price. Other taxes may apply depending on residency, speak with your lawyer to see what applies to you at completion.
Completion Process
Before the completion date you will secure final financing with your mortgage broker. There will be a deficiency walk through a few weeks before completion which will allow you to physically view your new home for the first time. During that time you will walk through the property and tag any deficiencies that need to be addressed eg.) cracks, poorly installed fixtures, chips in counters etc. These things sometimes happen during construction and this is your chance to get it resolved before you move in.
Research The Builder & Developer
Ask your REALTOR® about the developer and their reputation in the marketplace. Has there been any major problems with previous projects they built? Can you view other projects they’ve done to get a feel for the craftsmanship? What is their track record for dealing with deficiencies during the warranty period? Do they hold the company to a high standard, address any shortfalls in timely and professional manner? These are all considerations that may impact your decision to move forward with purchasing a home by a developer.
If you have any questions about presale projects or want to be kept in the loop about upcoming projects in your area, call or text Nevada at 604-897-6971
The content provided above is for informational purposes only and should not be solely relied upon. All information should be verified by official sources. Tax related advice should be obtained from an Accountant or Tax Lawyer. Legal advice should be obtained from a lawyer.
Written as of April 18, 2022.
