Top 13 Things to Know about Pre-Sale Condos

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Interested in Pre-Sale Condos in East Vancouver?

Pre-sale condos are condos that Buyers purchase directly from the developer, often before the developer has even started construction. You and the Developer are making a contractual obligation with regards to a specific unit: they promise to build it, and you promise to buy it, with a big caveat: You don’t get to see the unit until it’s in your possession.

Buying a pre-sale condo is a different process than we usually see in the East Van Real Estate Market.

Here are the Top 13 things you need to know about buying a Pre-Sale Condos:

1. You need to add a 5% GST to the Developer’s price. The price you see online, or the price given to you at the Sales Centre, will require an additional 5% GST tax. First Time Home Buyers purchasing a pre-sale condos may qualify for a GST rebate if they satisfy certain criteria and if the property is below a certain price.

2. Developer’s cannot start selling units or advertising prices until the “Developer’s Disclosure Statement” is filed in the Land Title Office. This document details everything about the project – from the people involved, to the components of the building, to the deposit structure, to preliminary strata details, to the legalities of the situation. This document is long, and Buyers should go through it with a fine tooth comb, inquiring with their Realtor and a Lawyer about any details they are unsure of.

3. Presentation Centres will have visuals of what the building will look like, floor plans, examples of the materials and colour schemes to be used and potentially an example suite and 3D model of the building. Use these tools to get a sense of where your unit is in the building, what your outlook will be, how the unit will be laid out and where everything else is in the building (parking, storage, garbage, amenities, elevator, front door, etc). When you’re there, you always want to ask a Developer’s representative what you can expect for the unit you’re buying – sometimes presentation centres show you what a unit looks like with all the upgrades to finishings, or with higher ceilings than you can expect, or with extra built-ins.

4. Buyers automatically* get 7 days for due diligence. What this means is once you are in agreement with the Developer to purchase the unit, and have signed the contracts, the Buyer gets an automatic 7 days to decide if they will be going through with the purchase. This gives the Buyer time to review their financing, go through the Disclosure Statement and do any further research on the building and neighbourhood. (*This is the case at the time of writing this blog – this policy may change so ensure a recession period is built into the contract prior to signing).

5. Know what the Deposit Structure is for the Building. New Developments have a different deposit structure than a typical purchase, which is outlaid in the Disclosure Statement. Typically, the Developer will ask for 1% of the purchase price upon signing the contract (you’ll get this back if you don’t go through with it), another 9% of the purchase price after the 7 day due diligence period, and then a further 5 or 10% a few months later. Buyers should make sure that they will have these funds when needed.

6. Financing will only be a pre-approval. With regards to mortgages, Buyers can receive a pre-approval that they qualify for a mortgage on the property, however, the mortgage doesn’t kick in until the unit is finished years later. This means that if your financial situation changes (i.e. lose your job or lose your down payment, or buy a second property in the meantime) you may no longer qualify for the mortgage – however – you’ll still have to complete the purchase of the property as you’re contractually obligated. Keep in mind that new Government Policies or Mortgage Rules can seriously affect your affordability, and what rules might be different at the time of Completion can be hard to predict if it’s still years away. For more on mortgage financing for pre-sales, check our my previous post: Mortgages for Pre-Sale Condos .

7. The Completion Date can be delayed by the Developer. The Developer can delay the completion date of the project (due to construction delays, weather delays, etc) for as long as necessary, and you have no recourse. I’ve had Buyers purchase into buildings that have been almost a year delayed.

8. The Size of the Unit can change. The finished unit can be a different size than indicated to Buyers during the sale. Developer’s have an obligation to deliver the unit to the best of their ability, but certain building and design details may change during construction and the Buyer will have no recourse, unless the unit is materially different (i.e. you buy a two bedroom unit and end up with a one bedroom unit). A change in sqft (or an extra beam or lost window) does not always constitute something that is materially different.

9. Buyers are always* allowed to rent units purchased from Developer’s. One of the biggest benefits of buying a unit directly from the Developer is that Buyers will always be exempt from any rental restrictions in the building (a big reason why investors like pre-sale condos). The Developer files a “Rental Disclosure Statement” for the building which allows the developer to rent out the units if needed, and this right is passed on to Buyers. Rules have changed recently, where this right is now passed on to all future Buyers of the unit until the expiry date noted on the Rental Disclosure Statement. Rental Disclosure Statements typically have a timeline of a 100 years. (*Assuming these rules haven’t changed since I wrote this blog).

10. The Project can be cancelled. Developer’s can cancel the project if they don’t receive their Development permit, if they don’t receive financing (which typically happens if they don’t sell enough units during pre-sale) or if they decide to change the project significantly. Buyers will get their deposit back in this situation, though that will be stated in the Developer’s Disclosure Statement.

11. Developer’s Increase their Prices as the Construction Continues. At least, this has been the case for the last few years as the Real Estate Market has been increasing. The least expensive time to buy a unit is before the Developer starts constructions, as the prices typically increase with the more units that are sold and with the further the unit is in it’s construction. I’ve had some luck with Buyers purchasing the last unit for sale in a building once the building because at that point the Developer is eager to close the file on the development.

12. Buyers may be able to secure extra parking or storage during pre-sale. Developer’s often sell parking and storage spaces as separate entities to the unit. From a value perspective, it is always useful to buy parking and storage, if not more than one, during the pre-sale. You may also be able to specify that the parking spot is a “large spot” or close to the elevator.

13. Units come with a Warranty. Not only does the building have a 2 year warranty on finishings, 5 year warranty on the exterior and a 10 year warranty on the structure, but Buyers get a 1 year warranty on the interior finishings and fixtures, and can ensure the Developer fixes all deficiencies in the unit (i.e. is there paint on the floor? does the bathroom need more caulking? does the window not latch property? etc). You want to make sure that you have a thorough inspection done of the unit BEFORE you move in, as it’s easier to claim that something as a Developer Deficiency before they can blame you once you’ve lived in it. Also, the new Strata should work together to ensure deficiencies are fixed since one big group asking for changes is stronger than owners asking for it individually.

At the end of the day, buying a pre-sale unit from a Developer gives Buyers a really good chance to earn some value on the unit. Buying a unit pre-sale entails some risk, and given this risk, the units are often cheaper than the same unit when it’s completed. As long as the market see an increase between the time you purchase and when the building is complete, you’ll likely see some value increase on the unit (which of course, is only realized if and when you sell).

Contact me (778-387-7371 or [email protected]for more information about buying pre-sale. Every situation is unique and we’ll ensure you know what you’re getting into.