Are you on the fence for buying a pre-construction condo? Don’t worry, the buying process is simpler than you may think. By taking a big-picture approach, you can enjoy a stress-free experience. This article presents nine straightforward steps to help you plan ahead and understand what to look for during the process. With these tips, you can make informed decisions and confidently move forward with your pre-construction purchase.
This step-by-step guide will help you navigate the process.
- First, determine your goals and budget and get a mortgage estimate.
- Next, review the builder, location, design, and demand of the pre-construction project.
- Third, request more information from your agent.
- Fourth, select units based on price, maintenance fees, and incentives.
- Fifth, fill out a worksheet to provide background information and select preferred units.
- Sixth, submit the agreement.
- Seventh, hire a lawyer to review the agreement.
- Eighth, fulfill the agreement’s conditions.
- Finally, close the agreement and have your agent sign the broker referral letter. By following these steps, you can successfully buy a pre-construction property. Are you excited about exploring a new opportunity? Let’s dive right into it!
Step One: Determine Your Goals and Budget.
The first step is to determine your goals and budget. This will help you understand the purpose of your purchase and whether it’s practical or feasible. It’s essential to know your goals and budget from the start. Ask yourself if this is an investment or a new home. If it’s the latter, you can benefit from rebates that make closing costs more affordable.
When it comes to determining your budget for pre-construction, the best way is to visit your preferred lending institution and request a mortgage estimate. This will provide you with an accurate figure of how much you can afford to borrow. Remember that a mortgage can include up to four people. By finding three other individuals willing to be on the mortgage, you can combine your resources and substantially increase your borrowing power, opening up more opportunities for you. However, it’s crucial to select trustworthy people with good credit scores.
Step Two: Select a Project.
When buying pre-construction properties, it’s important to remember that all that glitters is not gold. To avoid common mistakes, you need to consider several factors before making a purchase. First, review the builder’s current project pipeline and past projects to identify any delays, lawsuits, or bankruptcies. Second, assess the location of the project and look for desirable areas near nature, landmarks, tourist attractions, areas of growth, schools, workplaces, and transit. Third, review the design of the building and look for unique structures that complement the surrounding area. Consider that high-rise buildings may have more consistent maintenance fees than boutique projects because more people are contributing to the reserve fund. Finally, review the demand for the project and look for highly anticipated properties backed by famous designers, architects, or celebrities. The more hype a project has, the faster units will sell, which may lead to more incentives and offers from the builder if launches are more successful than anticipated. By considering these factors, you can make an informed decision and avoid costly mistakes.
Step Three: Request for More Information.
To get the best prices when buying pre-construction, it’s crucial to act early. Typically, allocation is given to the builder’s friends and family, followed by platinum and VIP agents. After 80% of the project is sold, the general public can purchase units. If you’re not related to the builder, the next best thing is to have a good relationship with a platinum agent (myself included). Simply reach out to your favorite agent to receive the price list, floor plans, and an investor brochure. Don’t wait any longer, act fast and get the most out of your pre-construction investment.
Step Four: Selecting Units.
As an experienced pre-construction buyer, you know that the best units sell out quickly. So, being the first to act and knowing exactly what you want is crucial to securing your dream unit. Start by reviewing the price list and focus on units with the lowest prices within each type. Compare the square footage, ceiling height, outdoor areas, view, and floor number of different units to determine their worth. Limited and unique units are the most sought-after and make the best investments.
Make sure to review the maintenance fees and compare them to the square footage to determine if you can afford them. Additionally, larger units offer unique incentives, such as free parking or lockers, that may not be available for smaller units.
When it comes to the price, pre-construction offers an affordable deposit structure, allowing for payments in increments instead of all at once. This is a deposit structure for a project released in 2022, a $10,000 bank draft is required with the offer, followed by a 5% deposit within 30 days minus the $10,000, 5% in 120 days, 2.5% in 380 days, 2.5% in 540 days, and 5% on occupancy, which is scheduled five years after signing. Keep in mind that investors often sell on assignment before occupancy to avoid closing costs and the final 5% deposit.
Remember, the maximum number of people allowed on a mortgage is four. For a $600,000 unit split between four people, each person must pay $2,500 on signing, $5,000 after 30 days, $7,500 in 120 days, $3,750 in 380 days, and another $3,750 in 540 days. In total, each person would have paid $22,500 within two years if you sold on assignment before occupancy.
Step Five: Submitting the Worksheet.
To fill out a worksheet you must provide background information and select preferred units. As units are sold on a first-come, first-serve basis during early release, it’s not always possible to get your first choice. That’s why builders require buyers to select three or more units. To secure your preferred unit, it’s important to have a reliable agent who can submit your worksheet promptly and accurately. With a serious buyer and a competent agent, you can increase your chances of getting what you want.
Step Six: Submit an Offer.
After you submit the worksheet, your agent will receive an allocation from the builder. You will then receive an agreement of purchase and sale via email, which must be signed online. Remember that you have a 10-day cooling-off period, during which you can cancel the agreement without penalty. This period starts on the date that you sign the agreement, and it is important to keep track of the calendar days to ensure that you don’t miss this opportunity to cancel if needed.
Step Seven: Lawyer Review.
When buying a pre-construction unit, it’s important to hire a lawyer during the 10-day cooling-off period. Your lawyer can review the agreement and identify any potential restrictions or issues that could impact your plans. They can also advise you on closing costs, development charges, and other fees.
It’s crucial to ensure that the development charges are capped to avoid any unexpected expenses later on. Your lawyer can prepare an amendment to have them capped if necessary. Note that the amount of development charges can become very high if left unprotected.
The cost of a lawyer’s review and amendment may vary, but it’s worth the investment. The lawyer that we work with charges $200 for the review and $100 for an amendment if needed. Don’t skip this step and make sure to get a good lawyer to help you achieve your goals.
Step Eight: Fulfilling the Conditions.
When completing the purchase agreement for a pre-construction property, you will need to provide post-dated cheques and a mortgage pre-approval letter. The cheques should cover all deposits, except for the final 5% due at occupancy. The pre-approval letter can be obtained from a bank or mortgage agent, depending on the builder’s requirements. It’s important to submit these documents within the cooling period, but still ask your agent about specific deadlines. Typically, post-dated cheques must be submitted within 15 days, and pre-approval letters within 2 months.
Step Nine Closing the Offer.
Once the 10 day cooling period ends, the deal becomes firm and can no longer be cancelled without incurring a penalty. The builder will review the post-dated cheques and the pre-approval letter, and upon successful completion, your agent will receive an email with the broker referral letter that they must sign to close the deal.
However, it’s important to keep in mind that ownership won’t be granted immediately after the deal is closed. Here are a few things to consider: 1. Remember the deposit structure and payment schedule, so you can plan accordingly and ensure you have enough funds in your bank account to cover each payment. 2. Before ownership, you’ll receive a notification of the interim occupancy period, during which you can move in. The final 5% deposit will also need to be submitted during this period. 3. As closing approaches, keep an eye on mortgage rates and work with your mortgage institution or professional to lock in rates 90-120 days prior to closing.
That concludes the buying process for pre-construction condos. We hope this information has been helpful and will assist you in making informed decisions for your next purchase.