Pre-Construction Condo Guide

Purchasing a pre-construction condo can save you money in the long run but make certain you know what you are getting into and that it is right for you.

Advantages to buying a pre-construction condo:

• The home builder generally offers more competitive pricing in order to raise the funds needed to get the project going faster.

• The earlier you sign the more you will be offered ex: appliances, flooring, view (south etc.)

• New homes and condos come with a new home warranty, which lasts for a total of seven years and provides up to $300,00 in coverage. The warranty also covers common areas. For more information click here.

• Lower condo fees since all amenities are covered under the new home warranty.

• Modern techniques and technologies are used in building resulting in greater efficiency, comfort, and durability.

• You may have negotiated for new appliances and amenities.

• Easily customize your home before moving in; choose colours that work for you

Note: since a bank requires a builder to show at least 80% of the building is spoken for before backing the project don’t count on the project going forward until the bank is involved.

You are purchasing a home by looking at artistic drawings.

Purchasing a condo will also require you to pay monthly maintenance fees for common area upkeep.

Should I buy direct from the builder?

The salesperson at the model suite works for the builder. They are looking to get the highest price for the unit and up-sell you on extra items such as kitchen appliances. The contract may include clauses that restrict your ability to resell before closing or renting the unit. So, unless you are a good negotiator or know what to expect use a realtor.

Why use a realtor for a pre-construction home?

• A realtor works for you; they have your interest in mind.

• They will work with your budget in mind.

• They will navigate the “legalese” for you.

• Realtors can help you get VIP access allowing you to choose a condo before the rest go on sale to the public.

• They can negotiate a cap on your development closing costs.

• An experienced realtor can save you money and worries in the long run.

Speaking of contracts:

• Negotiate the ability to sell or cancel your pre-construction contract in case you find yourself unemployed, injured or are in unexpected circumstances that prevent you from closing.

The main difference between pre-construction condos and resale condos is how the purchase is financed.

1. The Deposit and Fee Structure:

The deposit for a resale condo is a minimum 5% of the purchase price while the deposit on a pre-construction condo is at least 15-20%. The amount is broken down in installments and follows a prescribed fee structure which is in the contract.

Example of installments:

     1) A minimum deposit is put down with the offer ex: $3,000 - $5000. (this may not be a full 5% of the purchase price)

     2) The balance of the 5% is required in 30 days

     3) 5% in 90days

     4) 5% in 180 days

     5) 5% at occupancy

Installment structure may also vary by phase of construction.

Note: deposit amounts are generally higher at the beginning of the project in order to fund the construction. The bank financing the project will set this out as a requirement. The fee schedule and amounts closer to the completion of the project may be negotiated. Fees may be reduced or the payment schedule extended during negotiations.
 

2. The 10-day Cooling Off Period (calendar days not business days; weekends are included)

In Ontario, every purchaser of a new condo has 10 days to rethink their purchase. This is when you should inquire about financing with your bank and make sure you are ready to go ahead with the purchase. You should also have the purchase agreement contract reviewed by your real estate lawyer. If you change your mind, for any reason, you will receive the full amount of your deposit without deductions returned to you.

Note: While calculating your monthly finances keep in mind the closing fees which will be required at the closing date. (see below 9.)
 

3. Completion date

The builder will provide you with an expected completion date in your contract. However, this date may be extended due to unforeseen situations. Delays and builder penalties should be outlined in the purchase agreement contract. Some delays such as labour strikes or poor weather conditions are beyond the builder’s control and have resulted in closing dates extended 6 months to 2 years. Therefore, keep this in mind when purchasing a pre-construction condo and have a backup plan in case the completion date is extended. Purchasing from an experienced and reputable builder may reduce the need for delays.
 

4. Check up on your Builder

Check your builder’s history on Tarion.com. Tarion is a non-profit organization that provides warranty protection for new homes. Ontario builders and vendors must be registered with Tarion to build and sell homes legally in Ontario.  New homes and condos come with a new home warranty, which lasts for a total of seven years and provides up to $300,00 in coverage. The warranty also covers common areas. For more information click here.
 

5. Changes may occur in building plans

Changes may occur from the original conceptual drawings during the building process. Ex: pool moves from the top floor to the bottom or total amount of floors is modified.

Make sure you read the contract and be aware that changes may occur. So be flexible.
 

6. The Interim Occupancy Period 

You may be allowed to move in before the rest of the building is complete. The buyer does not yet own the condo until the building is complete and has been registered. Therefore, rent is paid to the builder which is equivalent to the mortgage payment + condo fees + taxes.

Occupancy fees and occupancy periods only exist in Ontario and are designed to allow the builder to break even on fees. The builder cannot make money on monthly interest or taxes. Any surplus acquired during this period will be returned to the buyer.

Why move in during the interim occupancy period?

• Your current rent and upkeep may be more than your new rent.

Things to be aware of since the building is not complete:

• All amenities may not be open for use. Ex: pool, laundry facilities

• The elevator will work

• There may be building noise during this period

• The higher your unit the less interim occupancy period you may be offered since the construction goes from bottom to top.
   

7. Condo Fees in new buildings

Since condo fees are estimated for a new building they may be raised when the actual cost of running the building is determined. Therefore, the fees may be adjusted higher in the first 2 years. Keep this in mind when planning your monthly finances. Purchasing from an experienced builder may reduce unforeseen management expenses.
 

8. Registration of the Condo 

The condominium is officially registered after the building has passed all city inspections and legal processes. Condo ownership is transferred from the builder to the buyer and mortgages begin. The registration period generally happens 4 – 8 months after people begin moving in (during the interim occupancy period).
 

9. Builder Closing Costs 

When the unit is officially registered you will be required to pay closing costs. These are additional expenses that you will need to pay. The total amount of the fees can amount to 1 - 3% of the original purchase price. However, the total amount may have been capped during negotiations prior to signing the contract. The specific list of fees should be spelled out in your contract but the amounts will vary. Using a real estate lawyer who has dealt with your builder may be helpful to forecast extra fees.

Additional fees:

Development (builder adjustments) and educational costs: $200 - $4,000
                        -HST on appliances and services
                        -Educational costs for the area

• New Home Warranty Plan enrolment fee: $200 - $1,200

• Utility hook-up fees: $50 - $500

• Assignment fees (if you sell the unit before the closing date): $3,000

• Occupancy fees

• Condo Reserve Fund (see below)
   

10. The Condo Reserve Fund 

This is an emergency fund which is used for unforeseen building repairs after closing. The equivalent of 2 months condo fees must be paid at the time of closing.
 

11. HST 

New buildings are subject to HST. However, if you are the end-user (you will be living in the unit), you will likely qualify for the GST/HST New Housing Rebate program. Most builders assume you will qualify and factor the rebate in.

If you are an investor or don’t plan on living in the unit check on your HST requirements with your lawyer.