What is a Presale Condo or Pre-construction Townhome?
What is a Presale condo or Townhome? A presale is a condominium that is sold before being built. By placing a deposit, buyers secure their future home. The total price will eventually be paid, but only when the building is completed. This means no home loan is needed until the property is built.
What are the benefits of buying a presale condo?
- The Selection of home and early access to a building.
- Delay Of Mortgage until completion of the building. This allows more time to save for the down payment and closing costs. There’s still the ability to have a rate hold from a partnering lender with the development. If rates go up, the rate hold will apply. If rates go down, the lesser amount would be the rate for the mortgage term.
- Building Up Equity. As housing prices rise throughout the construction period, the contract on the home also increases in value. Before completing your home, there’s the potential to see a profit. The ROI is why pre-sales are so popular with investors.
- Warranty Protection. Pre-sale homes come with 2, 5 or 10-year warranties, which allow for minimal cost as a new owner upon moving in.
One of the key benefits of purchasing pre-sale is:
- Seven-day rescission period. Legally required by the Real Estate Marketing Act, there is a seven-day period from an accepted contract to allow a purchaser to do their due diligence of reading the disclosure statement and ensuring this is the best purchase for their individual needs before committing to the purchase. After seven days, the contract becomes firm and binding.
What do you need to know about buying a pre-sale?
Deposit: Each development will have its deposit structure and amount required. The deposit is put towards your down payment at closing. The balance of the funds is due at completion.
GST & Property Transfer Tax is payable on all new properties in British Columbia. Federal tax is required on new construction and will be payable at completion. Make sure to consult with a qualified accountant to confirm any tax information.
What are the disadvantages of a presale?
- Federal Tax. 5% GST is required on top of the purchase price displayed by the developer. It is payable at completion.
- Real Estate Market fluctuation. The market can go up and down. The purchaser will still have to complete the property despite market conditions. Traditionally, real estate is a long hold asset. To cover your bases, hope for a quick flip, but prepare for holding the property as a rental or moving in.
- Mortgage Approval. There is no guarantee of getting a mortgage. A mortgage cannot be granted until completion. If the property is valued at less than the purchase price at completion, the purchaser will be responsible for making the difference.
- There is No Guarantee of a Profit. A popular form of making profits in a rising real estate market, there is no guarantee that the market will continue to rise in the period between purchasing and completing the building. It is recommended being able to complete on the home is possible to navigate risk. This relates to the market fluctuations stated above.
- The waiting period can be extended past the original completion date, sometimes over a year late. Make sure you can afford to wait. Where are you going to live in the meantime?
- Purchasing off a floor plan. Purchasing presale requires a bit of imagination and vision. There can be changes to the floor plan during construction. The developer will indicate a slight variance allowance in the Contract of Purchase and sale and disclosure statement. Having a realtor represent you in the purchase from the developer will assist in deciphering what variance on finishing and square footage may apply. It’s essential to purchase from a reputable developer to ensure a quality product.
The best way to determine if purchasing a home presale is the best option is to weigh the pros and cons with your mortgage specialist and a real estate professional.
How MVP Can Help You
Metro Vancouver Presales (MVP) works for you FOR FREE. We get paid by the developer, not the buyer! MVP will consult with you about your goals and give you access to presales that align with them. We will answer your questions and concerns and represent you fully in every presale process step.