Frequently Asked Questions (FAQ)
What is a pre-construction property?
The definition of a pre-construction property or a pre-sale property is that it is a property that you purchased before it has finished building.
Is buying pre-construction a good idea?
One of the reasons why people choose pre-construction projects is the deposit structure. They can put down between 10-20% of the value of the property, depending on the developers' offering, but they can earn appreciation at 100% of the value of the property for the next few years (depending on the completion/ possession date stated in the contract). It also gives them time to save funds during that time if they want to lower their mortgage payments by putting down an additional down payment at the time of the closing. They also don't have to worry about taxes, maintenance, mortgage payments, insurance etc. till possession.
Is pre-construction cheaper than resale?
One of the main benefits of buying a pre-constructed home is that usually (depending on which phase of the project you enter to purchase) it's cheaper than a resale model. When you buy pre-construction, you're taking the risk of your new home not being built on time due to delays.
Risks of buying pre-construction?
When you buy pre-construction, you risk the project not making it to the finish line. Whether it's a lack of sales or rising construction costs, pre-construction cancellation (although rare) is a reality for many homebuyers. You probably will get all your money back, but the money you invested in the project will not earn you anything. Inquiring about the reputation of a developer and their past project delivery helps in downplaying these risks. You are usually much less at risk when going with reputable and big developers, but then their projects might be pricier compared to others.
Is buying a pre-construction home for you?
Ask yourself if you are going to be able to afford this condo in the next few years upon completion. Work with your team of real estate professionals, mortgage brokers, lawyers and accountants to get the answers. If you can't afford it in the future, you might lose your deposits for defaulting and be sued for damages by the developer/ builder. Some builders will allow you to sell your contract to someone else by way of assignment for a fee, but others may not allow assignment or charge a higher fee. Understanding the repercussions of such scenarios will help in making your decision to purchase easier depending on whether you are a seasoned investor or a first-time homebuyer.
If you buy a pre-construction home, the law requires the developer/ builder to give you a 7-day cooling-off period in case you change your mind and want to rescind the contract. You should use this period to get the contract reviewed by a lawyer and get trusted advice from your accountant.
Bottom Line
This type of purchasing or investing is not for everyone. If you want to maximize your chances of success, you need to educate yourself on the risks and rewards. Usually, the developers launch a project in phases or stages and the price to purchase keeps increasing as you move along the lifecycle of the project starting from the launch of the project. It's important to hire the right representatives and try buying in one of the first launches of a pre-construction project to maximize your gains. Three parties should be involved in the purchasing process: your Realtor, who will get you the best price and incentives; your Accountant, who will let you know your tax liabilities; and your Lawyer, who will ensure you understand exactly what the contract says.
Publisher Disclaimer: The information included herein is from sources believed reliable but should not be relied upon without verification. It is strongly recommended that you seek independent legal advice before commencing any transaction. The publisher assumes no responsibility for its accuracy.
Developer Disclaimer: This is not an offering for sale. Any such offering can only be made with a disclosure statement. The developer reserves the right to make changes and modifications to the information contained herein without prior notice. Prices are subject to change without notice. Square Footage is approximate. Artists' renderings and maps are representations only and may not be accurate. E.&O.E.
