If you’re on the hunt for a pre-construction condominium, rather than a move-in ready unit, your buying journey is going to look quite different.
From having to account for instalment-based deposit structures and pre-construction “sales cycles,” to the fact you can customize multiple features of your future unit, the list of differences between pre-construction and resale is long.
With that in mind, TheRedPin created a quick rundown of common missteps that should be avoided by anyone who’s new to the world of pre-construction real estate.
Ignoring the pre-construction sales cycle
Real estate isn’t just about location. Timing is important too, particularly if you’re looking to buy pre-construction condos in Toronto. How come? A lot of it comes down to how condo developers release their inventory.
Rather than opening up access to all units to buyers at once, condo builders follow a sales cycle in which they stagger the release of their residences in multiple phases across several months.
Getting in early, during the first phase when a developer is still securing financing for a project, is critical to snagging pre-construction units for the lowest prices. Moreover, this is when developers tend to offer special incentives that can include everything from cash back to big discounts on parking and luxury finishes.
It’s common practice for developers to hike up prices progressively in each phase as they sell off inventory. Add to that the fact you may have a smaller selection of units (and floor plans) to choose from in the later phases of a project’s sales cycle (when much of a building has already sold) and it becomes all the more clear why getting into a pre-construction building early is key.
Going at it alone
Getting early access to a project’s sales cycle (and therefore, lower prices) largely comes down to working with a VIP realtor.
These specialized agents have direct relationships with condo builders and can grant you early access to units—before prices experience progressive increases and popular units are already bought up.
If you’re a pre-construction buyer, you won’t have to pay extra to work with a VIP agent as their commissions are covered by the condo builder (read more on real estate commissions here).
Along with a VIP realtor, you’ll also need a lawyer by your side. Aside from helping break down complicated legal jargon and disseminating all the details of a sales contract, lawyers can ensure a contract includes favourable terms. Remember, a contract with a real estate developer is legally binding, so it’s critical to hire a professional during this step before putting pen to paper.
Moreover, a lawyer will be key in disputing any issues in a sales contract during the 10-day cooling-off period (a short window of time when you can walk away from a deal with no repercussions).
Not looking at prices objectively
From not having to traverse heated bidding wars to the fact many pre-construction condos offer competitive prices that rival those of move-in ready resale condos, buying pre-construction has its obvious perks. However, it’s important for buyers to look at prices critically as you may not always get a great deal depending on the project and location.
The first thing buyers should do is look at prices on a per-square foot basis. While reading the line “condos from only the $200s” may be enticing, it’s always important to weigh how much you’ll be paying for a unit relative to its size so you can more clearly measure how much you’re getting for your money. Buyers should also have their agent look into how much similar, recently built resale condos sold for in the area to identify whether you’re really snagging a deal by going the pre-construction route.
Buying for the present, not the future
While all homebuyers should have a forward outlook when it comes to their home purchase (with an investment horizon of at least four to five years), having to account for the future reigns particularly true in pre-construction real estate. After all, you’re purchasing a condo that won’t even be completed for at least two years.
If you’re an end user who plans on moving into the pre-construction residence when it’s eventually built, you’ll have to take extra measures to account for the fact your purchase shouldn’t only be based on your current lifestyle, but in anticipation of the next couple of years.
Not factoring in the hidden costs
Lawyer fees, development charges, and having to pay HST on your pre-construction purchase are all additional costs on top of your mortgage and deposits you’ll have to account for. The latter (HST) is often the most confusing step in the pre-construction buying process (TheRedPin recently outlined facts about how HST is calculated in new and pre-construction condos).
It’s critical you speak with your realtor to understand the full gamut of costs involved when buying a pre-construction property.
Assuming brochures will always be 100% accurate
Even when buying from a top condo developer, pre-construction buyers have to go into a deal with the knowledge that floor plans presented in a brochure can face changes during the construction process. Therefore, it’s critical to go beyond what’s presented in a sales brochure and consult with your realtor and the developer on what the total amount of useable square footage will be in a unit, and perhaps even have your lawyer include a figure in your contract.