What is the purchase process for a Pre-construction property?
This information might be totally new to you as it is a different process from purchasing an existing property. Once you learn the basics, you will feel comfortable and once you go through the purchase process you will become an expert. Here you have the step by step of purchasing a pre-construction condo or home.
1. Select the Project you would like to purchase
When purchasing a pre-construction property there are a number of important things to consider. Right off the bat, you want to make sure you pick the right project. Are you purchasing for your own use, or are you purchasing it as an investment? If the unit is for yourself, you want to make sure it has the right layout, amenities and conveniences that make sense for you. If you’re looking for an investment, a greater consideration should be placed on location, transportation, and estimated rental income.
2. Select the perfect layout
Once you have determined the right development for you, you need to select a suite. You will review the floor plans, views, prices, and floor premiums. Depending on the use, personal or investment, you will select the right layout for you.
3. Reserve a suite
After looking at all the available options and selecting your top 3 layouts, we will need to complete a reservation form. The real estate agent representing you will assist you with completing the suite reservation form and take a copy of your ID. Submitting a reservation form does not mean that you have purchased a condo or home, it is simply “reserving” a unit for you until you sign an agreement of purchase and sale in person or through electronic signatures. This also gives the builder time to prepare the necessary paperwork. If submitted ahead of time before signing, this step will keep your waiting time at the presentation center to a minimum when you go to sign the contract.
4. Reservation Confirmed
Your reservation now needs to be confirmed with the builder, that the suite, floor and price you have selected is available. Once you have agreed upon this, an appointment will be booked to have the documents signed.
5. Signing the Agreement
The time has come to sign your contract for your new property! You will go to the presentation center, with your cheques and ID, where you will sign the Agreement of Purchase and Sale. If we are still in quarantine times, you will need with your real estate agent online to sign the contract. Your first payment might be an electronic payment, transferred from your account to the trust account for the development, the cheques will be mail or dropped of where indicated by the builder. Your purchase agreement will outline all details that have to do with your unit, including any parking spots and lockers included in your purchase. Your sales representative will be there to guide you and answer any questions you may have about your new purchase.
6. The 10 Day Rescission Period Begins
The 10-day rescission period has now begun. You will have 10 days to review your purchase and to arrange your finances. During this time, you will send your contract to an experience pre-construction real estate lawyer to review the contract and be able to advice if any changes are required. The lawyer will go over the contract with you and will explain the most important points. During this 10-day rescission period, you may cancel your purchase with NO penalty.
7. Firm & Binding Deal
On the 11th day after signing your agreement of purchase and sale, the deal will automatically go firm and your first deposit cheque will be cashed. You are now responsible to make sure that your deposit amounts are in your account by the deposit due dates.
How much deposit do I need when purchasing a pre-construction property?
When you purchase a pre-construction property, the deposit is decided by the builder. This deposit can be between 5% to 25% of the purchase price.
Most of the time the builder will require a deposit between 15% to 20% of the purchase price within a year.
Builder with more flexibility as we as projects with a small number of units available or with an occupancy date within a year will offer a reduced deposit structure. Usually between 5% to 10% of the purchase price.
Nowadays that we are going through a pandemic, some builders have extended their deposit structure making it easier for buyers to purchase.
Here you have an example of a standard deposit structure.
Do I need a lawyer to review my contract within the 10-day Rescission period?
It is very important that an experience lawyer in pre-construction contracts reviews your purchase agreement for the following reasons:
- You will understand the most important parts of your contract.
- They will be able to confirm of the different fees and/or expenses involved when purchasing a pre-construction condo are capped. If they are not, they will be able to request capping.
- They will be able to list as close as possible the total expenses you will incurred when buying a pre-construction condo. This will help you set a plan to cover the expenses once the property is ready and title is transferred to your name.
Do I need a real estate agent to help me buy a pre-construction property?
When you walk into a presentation center and talk to the on-site sales representative, you are dealing with the person who is representing the builder. They are very helpful, but they will protect the builder’s best interests first.
When you have an experience pre-construction real estate agent with you, you have a knowledgeable person protecting your best interests and guiding you through the process.
In any real estate transaction in Ontario, 99% of the times the person selling the property is the one who pays the buyers representative. This is the case for any pre-construction or existing purchases.
What information is requested in a Reservation Form?
Every buyer that will be listed in the agreement needs to provide the following information:
- Full name
- Date of birth
- Phone number
- Employer name
- Your selected suite(s)
- Parking: Yes/No
- Locker: Yes/No
- A copy of Picture ID ( Driver’s license)
What is an assignment Sale?
When purchasing a pre-construction property, a buyer signs an Agreement of Purchase and Sale with the builder, that reserves the ‘right’ to the unit they purchased.
An “Assignment Sale” is when the buyer of the property wants to sell their contract to a third person before title has been transferred to his/her name.
This typically happens between the time they originally signed their purchase agreement for the property, and the time the building is completed or ready to transfer title.
A “Resale” transaction is when a seller actually has ownership, the building is completed and already registered, and they decide to sell. This is different than an Assignment sale.
In the case of an Assignment sale, the seller doesn’t actually own anything other than an Agreement of Purchase and Sale they originally signed. The condo isn’t registered yet, and in some cases, the condo isn’t even built yet. They are selling the “right” to that condo. So, the seller is “Assigning” (or selling) that Agreement of Purchase and Sale and the rights of the condo over to the new buyer.
Benefits of an Assignment for Sellers:
- Sell before you close
- Avoid closing costs
- Avoid occupancy fees
- No need to get a mortgage
- Cash out (get back the deposits you have paid and profit)
Benefits of an Assignment for Buyers:
- Buy a brand new, never lived in condo
- No Waiting (pre-construction condos typically take 1-5 years to build)
- Tarion Warranty
- Original VIP incentives on the contract
- Stronger negotiating power