Whether you’re a seasoned investor or a first-time buyer, the purchase of your preconstruction condo poses significant risks. To avoid unnecessary stress, hidden closing costs, and unreasonable contract terms, it’s essential to select a skilled real estate agent.
The preconstruction market is hot right now, check out our top 17 things to know before buying a Toronto preconstruction condo:
- Honestly speaking, buying a preconstruction condo is not for everyone. You have to decide if you would rather get into the market immediately or in 3-4 years.
- The estimated closing date, or delivery date, is a best case scenario. Most builders run about 6-18 months late. The builder is also rarely penalized for delays, because the contract gives them significant leniency. Additionally, if the builder is late because of strikes or anything outside their scope of control, they are not held liable for any additional time it takes to complete the project.
- The builder’s drawings, the artist’s impressions, and the proposed amenities are just a template for the build. Sometimes the final product is very different from the what was marketed. The most often amenity that is canceled during the build is PATH access, usually followed by reduced pool size, smaller gyms, saunas etc. The builder can do that because those are not “material” changes to the unit you purchased. If you buy from a very reputable builder, you have a higher chance of getting what you expect.
- The deposit is more than the deposit on a traditional resale condo. Preconstruction deposits are usually around 15-20% of the purchase price. The deposits are payable in increments of 5% during specific stages of the build.
- Preconstruction condos have additional closing costs compared to regular resale condos. Even if you cap the additional costs, you should expect to pay around 5.5% of the purchase price in closing costs. Read more about these costs here: The 5 Most Overlooked Hidden Costs In Most Preconstruction Condo Contracts
- The estimated maintenance fees are set arbitrarily low, on purpose. Most of the maintenance required on the building will only come into affect 2 years after it’s built, so it’s initial maintenance costs are very low. From experience, we estimate most maintenance estimates are set around 20% below what’s realistic in the long term.
Reasons to buy preconstruction:
- We have a limited supply of detached and semi-detached homes.
- Buy at today’s market prices, but only pay for the home once it’s complete. Provided the market continues appreciating at the current rate, it could be a good investment. If you are upgrading from your current home, you benefit from both homes appreciating in price.
- The build schedule gives buyers a good amount of time to save up money for their home.
- The unit is completely customizable. You can even buy multiple units and combined them into one.
- Builders are no longer building our traditional notion of apartment buildings. Today, condos are more like luxury hotels with amenities and features on par with resorts. Many of the most popular builds feature rooftop pools, hot tubs, saunas, well-equipped gyms, and have quick access to transit.
What to know before signing the contract:
- Most preconstruction projects are required by law to give the buyer a 10-day cooling off period after signing the offer. During the 10 days, the buyer can walk away from the deal with no repercussions. It’s very important to have a lawyer review the contract during these 10 days, so you know exactly what you’re signing. Preconstruction contracts are each unique and different, so you can’t rely on your Realtor to know the contract back-to-front.
- Builders release condos in phases. Phase one has the cheapest prices and best floor plans, but is only open to company employees and friends. The second phase is released to clients working with Realtors who sell preconstruction condos. By the time the sales office officially opens to the public, 3 or more price increases have taken place, and the best units have sold. Project launches are seasonal, the best seasons to buy are early spring and the end of fall.
- The date the condo is ready to move in, and the date that it officially becomes yours are two different dates. Interim occupancy is the time between when you get possession and the time when the condo corporation is registered and you take title. During interim occupancy, you pay rent to the builder. During this time you don’t pay your mortgage, maintenance fees and utilities. Sometimes the interim rent includes real estate taxes, and sometimes it doesn’t, it’s important to clarify because the government will charge you interest if you do not pay it.
- All preconstruction condos and homes are subject to HST. If you are buying it as a personal residence, the builder will claim the HST rebate on your behalf. IE. The price you see advertised is the price you pay. If you’re buying it as an investment, you need to have 13% of the purchase price on hand to pay the HST payable on the home, and then you can claim a portion of it back. It’s significantly cheaper to buy the home as a personal residence rather than as an investment. The HST rebate on a home over $450,000 is only 75% of the PST, while you’re still liable to pay 100% of the GST.
- The purchase of a preconstruction condo is a commitment that you cannot cancel or easily sell. You need to have an assignment clause included in your contract, in case during the 3-4 year construction period you decide you no longer want to purchase the home. The assignment clause gives you the ability to resell the contract. However, even with an assignment clause you will need the builder’s permission to sell the contract. That means, if you buy a preconstruction condo, you are entering into a 3-4 year agreement that might not be breakable.
- The builder’s sales representatives are looking out for the builder’s best interest, they will not willingly cap your development fees, or give you additional incentives. Hiring a Realtor will open more doors to purchase units sooner, at better prices. A Realtor will also work in your best interest to cap any potential fees, and help choose the best floor plans and views.
The pre-construction market is exciting, and there are many options for investments, as well as personal residences. But, make sure to hire professional representation before you start registering for projects. If you register for a project on a builder’s website, or in house, you cannot hire a real estate agent after. For help or if you have any comments or questions, Contact us.