Top Pre-Construction Buying Questions: What You Need To Know
The process of buying a pre-construction condominium unit is a very exciting time for all those involved. If you are currently considering purchasing a pre-construction condo, you may have a few questions that you would like answered. In this article, we discuss the most common questions that prospective buyers have when buying pre-construction property.
Buying A Condominium Unit: The Process
Early on in the process, you will receive notification that a site is being planned by a developer. By registering early with us as your Platinum VIP agents, you will get notified by us as soon as the project is released to the Platinum VIP agents. As the project progresses, floor plans and price lists etc. are then distributed to you by email/portal project. Unlike some other VIP agents, you do not have to attend a “sales event” for most of the projects that we represent – we can assist you over the phone, through digital platforms or can meet with you in person.
Remember to ACT QUICKLY. Many first time buyers and investors miss out on several projects until they realize the importance of being decisive and finally securing a unit.
Worksheet submissions for popular projects in Platinum/VIP are then submitted to us. It is best to choose several unit types and several floor ranges for the best chance of getting a suite. At the time of submitting your worksheet, the developer will require your occupation and ID. These documents are required as part of FINTRAC and therefore, in order for you to secure a unit, you must upload your driver’s licence or other acceptable identification, and bring that identification with you at time of signing.
You Have Secured Your Unit – Now What Happens?
Once your unit is secured and you are ready to purchase, we would schedule an appointment with you at the sales office for you sign the Agreement and Purchase and Sale. At this appointment, you will be required to submit posted cheques, therefore, remember to bring your chequebook. The sales office will also require a copy of your identification at this appointment.
Generally, $5,000 is required for your first deposit upon signing and a balance to 5% of the purchase price due in 30 days. Then an additional 15 – 20% over the next two years. This depends on the developer but a total of 20% is a good guideline. Be aware, some developers require the first deposit to be in certified funds.
A few points regarding deposits:
- The first cheque is not deposited until the deal goes firm
- International buyers pay a higher deposit structure, usually 35% (additional identification required)
- Funds are held in the Lawyers Trust Account
When the Agreement of Purchase and Sale (APS) is executed by the developer, a 10 day “cooling off” period starts. Use this time to have the APS reviewed by a lawyer and have any questions answered. If you change your mind during the 10 day period, you have the opportunity to rescind your deal, sign a mutual release and get your cheques back.
Once the 10 days are over, the deal is firm.
The APS: Can Changes Be Requested To It?
Generally, during a busy Platinum/ VIP launch, changes to the APS are not accepted, due to the sheer volume of deals being processed. However, it is always worthwhile to ask.
Name changes are generally permitted if they are in addition to the APS (i.e., parent buys and wants to add an adult child on the deal).
Pay attention to deposit dates once the deal goes firm. NSF charges are usually very high and can put you into default.
Next Steps? Mortgage Pre-Approval
A mortgage pre-approval is generally needed, within 30 – 60 days of signing your deal. This is sometimes required during the 10 days cooling off period. Frequently the developer will have a banking representative associated with the project.
Pre-approval is required whether you are paying in full for your unit or taking out a mortgage – the developer requires this at the start of the project for their own financing and it is their lender that requires it.
After final registration, the title will be transferred to your name (usually within 20 days).
The Finances: How Much Should You Plan For?
When planning the finances that will be needed to purchase a pre-construction condo it is important to stay mindful of the following: unit cost, closing costs, interim occupancy fees, HST rebate and additional costs that you may occur.
Unit & Additional Costs
The cost of a unit will vary depending on the location that it is situated in and what amenities the building will feature. For most pre-construction condo units, the core cost is currently upwards of $1000/sqft. It is not uncommon for both parking and a locker to be an additional cost. The cost of parking can range from anywhere between $50,000 – $100,000 in the downtown core. Locker units approximately cost $5000.
The closing costs when purchasing a pre-construction unit include land transfer tax, development charges and utility hook up fees.
When purchasing a pre-construction condo unit, you must pay a land transfer tax to the province in which you live as part of the closing costs of the sale. This tax is applied to both pre-construction and resale properties and is required by law. To find out how land transfer tax you would be required to pay on a pre-construction unit, use this calculator.
In terms of development charges, make sure to review your agreement during the 10 days cooling off period and there should be no surprises. Developers will often cap these charges making it easier for you to estimate how much you will need to finance for these kinds of costs.
All pre-construction units will require the payment of utility hook-up fees. These fees include the connection to electrical power, natural gas, sewer, phone, cable TV and the Internet.
Interim Occupancy Fees
When you first get the keys to your new condo unit, you will enter a phase called interim occupancy. This refers to the period of time when you can occupy the unit before title transfer, which is when you take ownership of the unit.
When you take interim occupancy, you will be required to pay interim occupancyy fees which consist of monthly maintenance fees, estimated monthly taxes and interest on your unpaid balance.
If you are purchasing your condo to move into as your principal residence, the purchase price of your unit reflects the HST rebate, which is received by the developer, therefore, no HST will apply. If you are purchasing as an investor or a second home, you would be required to pay the HST on final closing, but you are eligible to claim back for a portion. In order to submit your claim, your unit needs a minimum one-year lease agreement in place. If you are purchasing as an investor, seek advice on HST and HST rebates etc. with your accountant.
Protection: What Kind Of Protection Do You Have?
The 10 days “cooling off” period will act as your period of protection during the purchasing process. It is extremely important to use these days to get all your questions answered prior to finalizing your decision to purchase. During this time period, it is also strongly suggested to have a lawyer familiar with pre-construction to review the APS and contract thoroughly with you.
TARION is an excellent resource for homeowners that will help you to find out more about homeowner protection and critical dates during the buying process. They also offer a home protection warranty which starts at occupancy.
Focusing On The Interior – What You Can Expect
Many pre-construction buyers have questions regarding the interiors of their condo units and how much of an input they have in terms of picking the finishes and when the building will be completed.
The phase of choosing finishes for a condo unit usually takes place between a year to eighteen months prior to occupancy. A representative from the development company and often an interior designer will arrange a meeting with the prospective homeowner. This meeting can take up to 3 hours in length but allows the homeowner to discuss the interior design ideas that they have for their new home.
In most cases, a pre-delivery inspection will take place in advance of your move-in date. This will allow you to view your unit and inspect any deficiencies, if any, such as insufficient paint coverage and scratches. These can then be highlighted during this inspection and fixed prior to you moving in.
Although your new condominium unit may be deemed ready to live in, construction is not fully complete when the first units begin to occupy. Common areas such as hallways, elevators, and amenity spaces are often incomplete at the time of occupancy. So, it is important to be aware that the finishings of the building may not complete when you are ready to move in.
The ‘What If’s’ Of A Pre-Construction Project
Many prospective buyers of pre-construction condo units have ‘what if’ questions in their mind when it comes to considering purchasing. As sales representatives, we have encountered many of these kinds of questions in the past and will detail the most common ones below.
If A Project Is Cancelled – What Happens?
Although this is very uncommon, it does happen occasionally. In most cases, if a builder or development company decides to cancel the construction of a new development project, you will receive your deposits back plus interest.
Before Closing – Is It Possible To Lease Or Sell The Unit?
Often you are permitted to sell your pre-construction condo unit before closing through an agreement called an Assignment. Most developers have to give permission before you are permitted to do this. It is also important to keep in mind that if you do decide to sell your condo unit before closing, you can’t advertise it and an assignment fee may be applied. Legal fees will also be required to be paid by the Purchaser.
In terms of leasing, it is sometimes possible. Some developers expressly permit leasing during occupancy, while others don’t. If leasing is an important thing for you, thoroughly review prior to purchasing.
Ready to buy a Pre-Construction Condo?
Answers can sometimes create more questions. If you’re ready to take the next step in your condo buying process, reach out to the experts at TorontoCondoVIP. Register now and get top quality guidance and the best condo buying experience.