Buying a Presale Condo 101
Is the process of buying a presale condo intimidating and unfamiliar? First-time homebuyers and anyone new to the presale or pre-construction condo market have similar concerns as well. Once you read over the straightforward guide below, you’ll understand the process is not intimidating at all. After you find the new development that’s right for you, here is how to buy the presale property.
What is a Presale Condo?
A presale condo is a type of preconstruction condo that developers offer to the public before the building is finished. Buyers are offered the opportunity to purchase units at a reduced price. Although buyers must eventually pay the entire price of the presale condos, a mortgage loan is not required until the unit is completed. If the market rises while the presale is being developed, buyers can leverage their initial presale investment.
What is the Deposit Structure of a Presale Condo?
The most frequently asked questions about presale condos are surrounding deposits. When purchasing a presale, the first step is to place a deposit down on the property. This presale deposit typically varies from 5 to 10% of the purchase price at the time of purchase, with the remaining 10 to 15% paid in instalments throughout the construction process. Presale condo deposits are scheduled to be made over a specified period of time. Here’s a look at a hypothetical deposit schedule for presale condos. Remember that every presale contract is different, so this is just an example of a deposit schedule.
- May 1, 2022: You find the perfect presale condo and put down $10,000 upon writing your offer.
- May 8, 2022: After a 7-day rescission period, the remaining 10% of the purchase price is due.
- May 1, 2023: An additional 5% of the purchase price is due.
- November 1, 2023: An additional 5% of the purchase price is due.
By now, you’ll have a 20% down payment made on the purchase price of your condo, which is common in today’s market. Once the building is complete, you’ll be ready to secure a mortgage and move into your new home. Deposits are held in a trust account, and developers won’t gain access to the funds until construction is complete.
What about Mortgages?
While you’ll likely need preapproval if you’re buying a presale condo, you won’t need to start paying the mortgage until your property is fully built, with your mortgage loan payments beginning upon final closing. This is when the building is officially registered with your city and when you get the title to your condo. When it comes to interest rates, you can lock in a rate if you’re purchasing a presale condo that will be completed in less than two years. Speak to your bank or mortgage broker and request a commitment letter to lock in rates if you’re trying to secure a mortgage at today’s rates.
What are the Benefits?
The interest in presale properties is high in many major Canadian cities. Homeowners are interested in selling in a few years but are interested in investing in a property today. Presale condos also offer the opportunity for new homebuyers to leverage their initial deposit, which has proven to be highly profitable for many investors in the past. These investment opportunities, with the ease of living that comes from moving into a brand new condo and extended warranty insurance, make presale condos a desirable option for many homebuyers!
Agents
Working with an agent is free for buyers, which is why you should work with an agent when purchasing a presale property. Developers will pay the commission to the buyer’s agent upon the sale completion, leaving buyers with the confidence of knowing that they have representation throughout every step of the presale process. An experienced agent will help you negotiate layouts and amenities with developers and be there to guide you through any questions or concerns you may have about purchasing a pre-construction property.
Are Presale Condos Safe to Buy?
The biggest risk when buying a presale condo is that you won’t know what the market is going to look like when your condo is complete. However, not knowing what the market is going to look like will be a risk associated with any investment. If you’re financially prepared for worst-case scenarios and do your research on the area, market, and developer you’re working with, the benefits of purchasing a prebuild condo could outweigh the potential risks.
A lot of thought should go into deciding whether or not to purchase a presale property. Hopefully this helps you understand the process of buying a presale condo and what steps need to be taken to secure yourself a prebuild. If you have questions and would like a fully detailed explanation of the process or you’re ready to buy a presale condo, feel free to reach out to one of our experienced associates and we will help you make the process less intimidating.