Preconstruction: A Beginner’s Guide
image credit: The Toronto Blog
We often see signs for preconstruction condo purchases on blocked off corners where heavy machinery trundles around, tearing down and building up, but how exactly does purchasing a preconstruction condo work? Why should you purchase a preconstruction condo over one that’s already built? We’d like to help provide some simple answers for those of you new to the concept, and give some tips along the way.
We’ll start with the basics. Buying preconstruction means putting money down for a property that does not yet exist and making your choice based off of a floor plan and renderings. This practice is common, even essential for the Developers, especially in big cities like Toronto.
How does that help you? Preconstruction offers the benefit of choice. If you get in early, you’ll have a much wider availability of units to choose from, letting you have more control over what floorplan, what level, and what exposure your home will have. You can sometimes even add parking or a locker to the deal.
Preconstruction used to be easier on the budget, as Developers would set more competitive prices to make quick money so they could fund the actual construction process. Unfortunately, prices are now much closer to regular real estate resale value, especially in Toronto because our market is booming. However, there is still much to be said for getting in early, as market reports show a consistent raise in prices year over year. Between the time you purchase your preconstruction and when the building is completed, the market is likely to have crept even higher, creating more value for your purchase.
This does come with the downside of requiring a larger deposit from the buyer up front, but this deposit is often spread through a long-term payment plan. More on that later.
Once you have your location and layout picked, with a preconstruction you’ll often get the option to customize what finishing touches you’d like on your unit. Things like bathroom tile, design highlights, and kitchen accents are typically offered in a number of different styles for you to decide from.
Moving along to when you have your home, you can often look forward to lower maintenance costs for at least a couple years as the building is shiny and new.
The downsides? Construction timelines are always subject to change, so don’t be too surprised if you miss your move-in mark. There is also occasionally the risk of a project falling through. The best safeguard against this is doing your research on the Developer before you buy in. Check out what projects they’ve worked on in the past, and what delays may have come up.
If your builder is less experienced and the project is scrapped, rest assured that at least your deposit is safe. From the Tarion page of Condominium Cancellations: “If a project is terminated because an early termination condition was not satisfied, the vendor is obliged under the Addendum to refund all monies paid by the purchaser, plus interest calculated in accordance with the Condominium Act.” See the Tarion website for more details.
As mentioned earlier, preconstruction condos typically require larger down payments at the offset. The payment plan is different for everyone, but an example of an average pricing plan begins with a deposit of a few thousand dollars, with 5% of the full purchase price being required every few months as the project nears its close, for a total of roughly 20% down payment before the project is complete.
There are also closing costs to be considered. Make sure you do your research on the project and plan accordingly. You’ll need a lawyer to look over the paperwork, there may be builder fees, HST, and land transfer taxes.
It’s a lot to take in, but an experienced Realtor® and a reliable Developer can make the process smooth. With a little help and research, you’ll be on your way to owning your brand new, custom chosen property in no time!
(Or rather, in however long it takes to complete the building.)
That sounds great, and I think I want to purchase a preconstruction condo!
Where do I start?
First, you’ll want to pick a Real Estate Representative. Realtors® often get access to preconstruction projects before the general public, and can help you navigate every step of the way. Together you can explore your options and pick a project with a reputable buyer that suits your budget and preferences.
Once you find a project that suits you, to request a unit you will fill out a specific worksheet with your ID and submit it to the buyer to show your interest.
If the builder decides you’re a good fit, they’ll then follow up with you and provide an Agreement of Purchase and Sale. Your Realtor® can help you navigate the paperwork, and soon enough you’ll be providing your deposit cheque to the builder.
After you’ve signed the paperwork comes a 10-day cooling off period. This gives you further time to consider your contract and to cancel with no financial penalties if you change your mind.
At this point (or at any point, really) it’s important to make sure you’re pre-approved for a mortgage to fund your endeavour. As the building is not yet registered, you will not be able to fully enter into a mortgage until final occupancy, and when the building is registered as a condominium. At this point the units will be transferred to each individual owner.
Once the cooling off period ends, your first cheque will be cashed, and your deal will be officially firm. After this you will move onto the fun part: picking out finishes to perfect and personalize your condo.
Now comes the long wait. If all goes to schedule, you will move onto the closing dates for your property, of which there are two: Interim Occupancy and Final Closing. At the time of your Interim Occupancy, you’ll need to pay any outstanding deposits and occupancy fees, and meet with your lawyer. At time of final closing, you will meet your lawyer again to finalize the paperwork and your mortgage will kick in.
Of course, these steps are just the basics, and every project is just a bit different, but with an experienced Realtor® on your side you’ll make it through and on the other side will be your brand-new home, or investment, or both.
image credit: @classyglamstaging
One final note on the preconstruction process. If you decide during the waiting period between your deposits and your closing, you can choose to opt out and transfer your preconstruction to another buyer. This is called an Assignment Sale. Your assignee will take over and pay your deposits back to you, and continue along with the transaction. This can be a good way to make a quick profit if you’re just looking to flip the property, or if you get cold feet.
We hope you found that information useful. For more in depth info, our Realtors® here at Envision are fully experienced with preconstruction and assignment transactions. We know the market and have priority access to a variety of preconstruction projects across the city. For any of your preconstruction and assignment inquiries, feel free to contact us and we’ll be happy to help!