Frequently Asked Questions About Buying Pre-Construction Condo
Why should I buy a pre-construction condo and not a resale condo?
Think about how nice it is to own something new. A lot of people prefer to buy brand-new, whether it’s a new car, a new phone, or a new home. People are attracted to the latest, most modern things in life. Think about how nice it would be to own a condominium suite that nobody has lived in yet, and use amenities that are freshly-installed.
Another reason is that the purchase price of a pre-construction unit is often cheaper. Additionally, appreciation is higher and more rapid because the structure has just been built, compared to a resale unit which has already appreciated somewhat.
You will also be the first person to occupy the space; the first person to use the new, state-of-the-art appliances, the first person to enjoy the view from your balcony, the first person to relax in your new soaker tub. For many residents, one of the best parts is customizing your own finishes and upgrades, which can only be done in the pre-construction phase.
Why do I need a Real Estate Agent when I can go straight to the Builder?
Buying real estate is one of the largest purchases you might ever make, so we don’t need to tell you that it’s not something to take lightly. As platinum brokers, we protect your interests by representing you, not the developers.
Keep in mind that the on-site sales team works directly for the developer, so they’re interested in selling their project and their project only.
We, on the other hand, are here to support you. We’ll guide you through the complicated process and make sure there are no surprises. Because we specialize in pre-construction, we can educate you about the developer, the site plan, different layouts, market trends, and the lease process if you’re an investor. We can also show you other options in the area, something the developer’s sales team likely won’t do.
One of the biggest perks is that we have access to these projects before they’re released to the public, giving you first choice of suites at the lowest price. By the time the developer is selling to the public, many of the units will likely be sold and the remaining inventory will have increased in price.
Another advantage is that using a platinum broker doesn’t cost you anything, as we get paid a commission by the seller, not the buyer.
Where is the best place to buy a condo to make the most on my return?
There is no cookie-cutter answer to this question. Why? Because every buyer, neighbourhood and time frame is different.
It boils down to a few main factors: your intentions, price range and lifestyle. You might want to call your new condo home, or you might want to lease it out and use it as an income property, and those can have very different outcomes.
Let’s look at these factors.
a) Intention: If you’re an investor, we will provide you with market research and statistics to help maximize your return on investment. If you intend to live in your new unit, we’ll get to know you and find you a home that fits your lifestyle now, yet provides long-term value.
b) Affordability: We can provide you with several options with your budget. Pre-construction condos usually require a down payment equal to 20 percent of the purchase price, although the deposit structure allows you to stagger your payments over the pre-construction period.
Whether you’re living in your space or leasing it out, you may qualify for HST rebates.
c) Lifestyle: We have access to a wealth of projects at the platinum stage, which allows you to shop and compare options. Once we get to know you, we can narrow down choices based on your wants and needs. Do you prefer sleek high-rises or cozy boutique buildings? Waterfront views or city skyline view? Would you prefer a ravine in your backyard or the city’s hottest restaurants?
If you’re looking at an investment property, there are definitely some strategic choices you can make, such as buying near subway access, high-density employment areas or desirable shopping and entertainment hubs.
What type of units are most popular for investment?
It’s hard to go wrong with one-bedroom-plus-den and two-bedroom units, as they tend to attract more professionals and young families. Studios generate great rental income and are often popular with students, but may take somewhat longer to sell in the current market.
Should I buy parking with my unit?
Parking spaces in the downtown core can range from $40,000 to $80,000 for one spot. Can you see yourself living here in the next 5-10 years and is a car a necessity? If the answer is yes, then you should consider buying one. Just like the appreciation of a unit, you will likely be able to sell your parking space for a higher price eventually.
If you are strictly an investor and you are buying a one-bedroom unit in an area with an excellent walk score, save your money and pass on a parking space. For a lot that costs $50,000, it will take you approximately 20 years to pay it off if you rent it out for $200 per month. If, however, you’re buying a two-bedroom or three-bedroom and anticipate renting to a family, or if you buy in a neighbourhood where having a car makes commuting easier, it might be something to consider.
Which exposure is the best for resale?
Often, south-facing views make a great option for resale, provided they’re not obstructed. Anywhere you can see the waterfront, the CN Tower or the downtown skyline will be extremely popular with buyers. If you are choosing to live in your new home, ask yourself: do you like morning sun? Consider an east exposure. For those who like afternoon sun, consider a west-facing unit.
Can I own multiple properties in the same building?
Yes! You can definitely own multiple properties in one building, although the government will ask you to designate one as your primary residence. Any additional properties are considered an investment and may be subjected to HST at final closing.
If you’re purchasing a property for an immediate relative to use as their primary residence, you may qualify for an HST rebate.
If it’s an investment property, we can assist you with applying for rebates as well.
What should I do if I’m not 100% sure about buying this last unit you have for sale today?
Buy it!!!! Remember, you have a 10-day “cooling off period” to think it over and if you change your mind during this period, you don’t face any financial penalties. But you know Murphy's Law: the moment you like something, there are two more people wanting the same thing.
If you are 90% sure and it's the last model available, consider buying and take advantage of those ten days to evaluate your choice. We’ve been in so many situations where our clients weren't sure and hesitated. The next day they came in and said they wanted to buy it, but the suite was already sold. The cooling off period is there for you, use it to your advantage.
What is a “Cooling Period”?
The cooling off period is a time frame where the unit is reserved for you, but allows you the time and space to make a final decision. After signing the Agreement of Purchase and Sale for your unit, you have 10 calendar days to do your due diligence. During this time, we suggest you review the contract with a pre-construction lawyer, speak to your financial institution and get your mortgage pre-approval in place and ultimately, decide if you want to buy the suite.
If, during the 10 days you decide you no longer wish to buy the unit, you can simply cancel the contract by going back to the sales centre, returning all the documents and signing the Rescission Letter.
If you decide to go ahead with the purchase, congratulations! You’ve bought yourself a brand-new condo. This means that the contract is binding and your first cheque is cashed on the 11th day.
What happens to my deposits if I change my mind?
If you’re still in the 10-day cooling off period and you decide not to go ahead with the purchase, the builder’s office will return your deposits in full prior to the end of the 10 days.
I bought my unit 15 days ago, but my first deposit cheque hasn't been cashed. Why?
This is very common in newly-launched developments. The first cheque is usually cashed 10 days after signing the contract, but sometimes, if it's a busy release and the developer has sold a lot of suites in a short amount of time, your file will take longer to process and your cheque may take longer to cash. This isn’t uncommon, so rest assured, your file will be processed as soon as possible.
What else should I know about payments?
Avoid non-sufficient-fund (NSF) fees! This is easily forgotten by many buyers.
One thing we advise our clients to do is to set reminders on your calendar for the post-dated cheque withdrawal dates. It's very easy to forget and if you neglect to have the amount in your account, you will get charged a NSF fee, which could be anywhere from $250 to $750. Understandably, this is not fun, especially if you aren’t expecting it. Plan ahead!
Do I need a Lawyer?
Yes. You will need a lawyer to review your purchase agreement during the cooling off period, at the interim occupancy stage and at final closing. When you buy pre-construction, you will sign a lot of documents and it’s helpful to have a lawyer who specializes in these kind of purchases helping you navigate these documents. Please make sure your lawyer has experience with pre-construction purchases, as it’s a different process than a traditional resale. A good legal representative will look out for your interests and help you understand all your rights and responsibilities.
How much will a pre-construction lawyer charge me?
The lawyers we work with charge an all-inclusive fee of $2,003.00 plus HST, which totals $2,263.00. If you decide not to go forward with the transaction following their review of the agreement, then a cost of $300 plus HST will apply.
Please note that if there are any special considerations (i.e., out-of-town signing, rush closing, additional mortgages, tenancy assumption, extension requests, etc.), additional costs will apply.
What happens when I get a pre-approval for a mortgage now but in the next few years my financial situation changes and I cannot close on the property, or decide not to?
We understand that things could change in the next few years. Usually builders will permit something called an “assignment” or “assignment sale.” This allows you to sell your contract prior to the final closing. As your broker, we always ensure this clause is written into your purchase agreement, but be sure to read the contract carefully as there may be some rules surrounding it. Some developers will charge an assignment fee (ranging from $1,000 to $6,000) and some will waive this fee.
As long as the building has a certain number of units already sold (in most cases 75% or more) the builder usually allows this kind of sale.
What is an Interim Occupancy fee?
During the “Interim Occupancy phase”, it is safe and legal to live in your suite, but the building is still awaiting full completion and can’t be registered. This means you can live there (or rent it out), but you don’t have ownership title and you can’t yet register a mortgage.
This period could last anywhere from a few months to two years. During this timeframe, you will be paying a form of rent, also called “occupancy fees” to the developer. This is usually paid monthly and consists of interest on the unpaid balance of the unit’s purchase price, an estimate of property taxes and maintenance fees.
What should I expect at closing?
There are additional costs at closing, along with some specialized paperwork. Aside from the the down payment you give to the developer, be prepared to set aside four or five percent of the final purchase price for final closing costs. We’ll guide you through this process so it seems less overwhelming. Read more about the closing procedure.
Will the condo fees go up every year?
First let’s clear something up. The amount you pay in maintenance fees is based on the interior space of your suite only. That calculation doesn’t include your balcony or terrace.
The maintenance fee that is stated on the sales agreement is usually what you will pay for the first year. There is a condominium reserve fund that is in place for every building and it’s up to your condo board to manage these funds and decide how they will be used. You can assist by joining the board and having input on these decisions.
During the first few years, there's not much to maintain, as the building is new. These days, in newer buildings, the maintenance fees often don’t include Hydro, water or heating and cooling, which means you have control over your consumption. This could result in your fees staying lower, although keep in mind that it’s likely for fees to increase approximately three to five per cent a year to cover inflation.
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