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Most Frequently Asked Questions On Buying A Pre-Construction Condo
Answering Some of Your Most Frequently Asked Questions
When it comes to purchasing a pre-construction condominium unit, we understand that it's a big investment. In fact, it will probably be one of the biggest financial investments you will ever make. Many first-time and seasoned investors may have a lot of questions when it comes to purchasing a pre-construction condominium unit. There are many steps involved, usually more than purchasing a resale condo unit.
Our goal is to help all of our clients and provide them with accurate information and tools that they need in order to help them find a condominium unit that is right for them. We want to ensure that you have a seamless experience when you purchase a condominium unit. We believe that by providing you with the right information, you will be able to make a more informed decision about which condominium project you want as well as selecting the right location to invest in and the right floor plan. That’s why we created a detailed list of Frequently Asked Questions in order to answer any questions you may have.
Before You Buy a Pre-Construction Condominium Unit
Why Should I Buy a Pre-Construction Condo and Not a Resale Condo?
One of the most attractive aspects of buying in the pre-construction phase is that units will be the cheapest. Also, a pre-construction unit will likely have a higher and more rapid appreciation rate because of its newly built status, as opposed to a resale unit, which has already seen that initial appreciation bump.
In addition to the practical reasons for buying pre-construction, just think about how nice it is to own something new. Of course it’s better to buy brand-new, whether it’s a new car, 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. You can be the first to use the freshly-installed amenities.
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. Another major benefit to buying new is customizing your own finishes and upgrades, which is some people’s favourite part.
Why Do I Need a Real Estate Agent When I Can Go Straight to the Builder?
Buying real estate is potentially one of the largest purchases you will ever make, so you probably already know how important it is to take it seriously. Real Estate Agents are highly trained professionals who need to know the ins and outs of the industry before they can get certified. In addition to the training, many Platinum Agents have over a decade of experience.
You should also 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. As platinum brokers, we protect your interests by representing you, not the developers.
We are here to support you. We’ll guide you through the complicated purchasing process and make sure there are no surprises. Our specialties in pre-construction also means we can educate you about developers, the site plans, different layouts, market trends, pre-construction closing costs, the lease process and carrying costs if you’re an investor. We can show you multiple options in any given area too, something the developer’s sales team won’t do.
One of the biggest perks of going with a Platinum Agent is that we have access to 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.
The best part about going with a Platinum Agent? It doesn’t cost you a thing. This is because our commission is paid by the seller, not the buyer.
Making the Right Choice
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 because every buyer, neighbourhood, and time frame is different. Your personality and what you want out of the new condo is important too. 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 these can have very different outcomes.
Despite these variables, we can boil it down to a few main factors: your intentions, price range and lifestyle.
Let’s look at these factors.
- 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 current lifestyle, while also providing long-term value.
- Price Range: We can provide you with several options within 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.
It’s also important to note that whether you’re living in your space or leasing it out, you may qualify for HST rebates.
- Lifestyle: We have access to a wealth of projects at the platinum stage, allowing 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 or city skyline view? Would you prefer a ravine in your backyard or the city’s hottest restaurants?
If you’re primarily looking for an investment property, there are definitely some strategic choices you can make. You may look for developments near subway access, high-density employment areas, desirable shopping centres, 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, because they tend to attract more professionals and young families. Studios generate great rental income and are often popular with students, but may take longer to sell in the current market.
Should I Buy Parking With My Unit?
Before considering purchasing a parking spot, you should ask yourself, 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. Parking spaces in the downtown core currently range from $50,000 to $100,000 per spot, but just like the appreciation of a unit, your parking spot will likely increase in value.
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?
Unobstructed south-facing views often make a great option for resale. 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, you may want to consider whether you prefer having the sun in the morning or the afternoon. It’s these types of personal questions that determine whether an east or west facing unit is better for you.
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 the GST/HST new residential rental property rebate as well.
Purchasing a Pre-Construction Condominium Unit
What is a “Cooling Period”?
The cooling off period is a time frame where the unit is reserved for you, and it 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 perform 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 you decide you no longer wish to buy the unit during the 10 days, 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 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 change your mind. If you decide to not go ahead with the purchase, you won’t face any financial penalties. Just remember: 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 it to 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 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 typically cashed 10 days after signing the contract, but sometimes it’s a busy release and the developer has sold more units than they anticipated. When they sell a high number of suites in a short amount of time, your file may 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 don’t 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!
What to Expect After the Purchase
Do I Need a Lawyer?
Yes. You will need a lawyer to review your Agreement of Purchase and Sale 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 to help 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 of your rights and responsibilities.
How Much Will a Pre-Construction Lawyer Charge Me?
The lawyers we work will charge an all-inclusive fee of $1,500 plus HST, which totals $1,700. 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 span of a 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 that you can live there pay the fees to the developer, but you don’t have the 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 monthly fee to the developer, these are also called “occupancy fees.” 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 down payment you give to the developer, be prepared to set aside eight or sixteen percent of the final purchase price for final closing costs. We’ll guide you through this process so it seems less overwhelming. Click here to 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 due to the building being brand 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 over the years to cover inflation.
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