If you are the type of person who loves to customize your home and relish the opportunity of being an original owner, buying pre-construction condos is for you. Although you may consider reaching out to the developer directly, there are many reasons to be represented by a real estate agent who has specialized expertise and knowledge in builders’ contracts, negotiations and the procedures involved with closing that will protect you and your investment.
Here are some factors to consider when buying pre-construction condos:
Protection at No Charge: Since the buyer’s agents’ fees are already built into the purchase price, the most significant advantage of buying pre-construction condos through a real estate agent is that you will not incur any additional fees for our guidance. However, you must declare and introduce your agent to the builder from the moment you register as a client in order to be represented by them.
Developer’s Sales Team: The builder’s sales representative is not working for you, they are working for the developer and their interests. They are not real estate agents and therefore are not required to abide by the strict code of ethics that we are. You deserve the loyalty of an experienced professional who will work to protect your rights and secure you the best return on your investment.
Deposit Payment Plans: Higher deposits are required when buying pre-construction condos as opposed to a resale unit. These are often as high as 25% of the total purchase price and are due before your occupancy date. The deposit schedule varies with different builders but is generally timed either with the different phases of construction, i.e. 5% when you break ground, 5% on occupancy, or by timed intervals: 5% at 30 days, 5% at 90 days, and so on.
Cooling Off Periods: In Ontario, ten calendar days after you have received either the full signed purchase agreement or the disclosure statement is considered the cooling off period. If you change your mind, your deposit plus any interest that may be payable will be refunded. During this time frame, it is recommended to arrange your mortgage financing and obtain legal representation.
Disclosure Statements: The developer of the building must provide you with a disclosure statement which includes the following information: property description, the number of units, estimated start and finish dates, the condo corporation’s current budget, condo fees, and condo by-laws, rules and restrictions.
New Condo Warranty: New pre-construction condos are covered by the Ontario New Home Warranties Plan Act; however, this does not mean you should skip the home inspection.
Anticipate Delays: Although you will be given an expected date of completion for the building, there are factors that may affect this date. Your agreement to purchase will determine if there are builder penalties for delays, but be prepared to wait anywhere from 6 months to a year or more before you can move in. Plan alternate living arrangements in the event that there are extended delays.
Building Revisions: The information regarding the building itself that appears in your sales agreement is subject to change and may include condo layout, the number of storeys, or certain building amenities. Be advised, you will be protected from certain material changes, however, you may not get exactly what you signed up for. I will be able to discern what these are and educate and advise you in this situation.
Interim Occupancy: During the time in between the completion of the building’s units and when you can actually take possession, you do not own the condo and you will be required to pay the builder an occupancy fee. These may be estimated at the cost of your mortgage plus condo fees and taxes but will be paid to the builder. In these circumstances, you can rely on my experience to ensure you are being treated fairly.
Condo Maintenance Fees: Typically, the original condo maintenance fees you were quoted when you signed your purchase agreement will increase once the building is registered and a board is elected. There may be adjustments up to 10-15%, which usually occur during the second to third fiscal year of ownership after the board of directors conduct the first reserve fund study and the true costs of maintaining the building come to light.
Closing Costs: There are additional closing costs when you are buying pre-construction condos as opposed to resale condos. These closing fees usually include HST on included appliances, installation fees for utilities, builder adjustment, and development fees. It would be wise to budget an extra 3-5% of the original purchase price to be added at closing.
Reserve Funds: At closing, you will need to contribute, at the minimum, at least 2 months of condo maintenance fees which will be dedicated to the condo’s reserve fund in case of building emergencies.
Sales Taxes: Buying pre-construction condos is subject to HST, however, if you are the occupant of the condo, you may be eligible for an HST rebate. This is something that should be verified through legal advice and if you would like a recommendation, I have a list of trusted professionals whom I have built relationships with.