There may be a lot of pre-loved homes available in the market today, but there’s also a different thrill to owning a brand new property. For more discounts on home prices, some homeowners opt for presale homes.
When you buy a presale home, you’re paying for a house that hasn’t been constructed yet. Therefore, a pre-construction sale is a property offered for sale by a developer before development has even begun.
A deposit is required upfront, and then you only have to wait for the building to be completed. Your mortgage payments don’t begin until the project is finished, and you also pay the rest of your down payment at that time.
Your deposit is separated into two parts—the first part held in escrow, while the second is invested in the mortgage and placed in your name. The amount needed for the deposit depends on the developer and the scope of the work to be done. Every construction project has a 15-25 percent deposit schedule, usually spread out in incremental payments.
The deposit is usually held in trust by the developer’s lawyer or realtor’s brokerage. If the developer declares bankruptcy or suffers a significant setback that prevents them from executing the project, your deposit will be returned to you. However, remember that it is more challenging to get your deposit back. In the case of unreliable developers, you may not be able to get it back at all.
You need to be very careful and protect yourself when buying a presale condo. Work only with trusted developers and have your own realtor or property lawyer examine the contract and take note of the developer’s escape clauses inside the purchase and sale agreement.
All contracts have a 7-day rescission period, which people can go over with a lawyer if they have any concerns and back out of the deal before the end of this period if needed.
The Home Construction Regulatory Authority (HCRA) advises consumers to seek legal counsel and register complaints with the agency if their developer violates a contract. If the agency finds misbehaviour, the developer may be warned or educated. A disciplinary body might cancel its license and punish it up to 25,000 CAD, like in the case of Pace Developments backing out of contracts with seventy buyers in Barrie, Ontario, citing price increases during the pandemic as a reason.
Sadly, most pre-construction contracts give developers the right to back out of sales agreements, demand more funds, and postpone projects if “unavoidable” circumstances arise, such as a pandemic. Premier Doug Ford of Ontario shunned this action, while the HCRA encouraged buyers to file complaints.
What if you are the one who wants to back out? It’s almost certain you won’t recover your deposit, especially so close to the project completion. It’s better to wait for the project’s completion and just sell the property afterwards.
For this reason, always seek advice from your lawyer before entering a presale condo purchase agreement and putting down any deposit.
Presale condos, a growing market, might be an excellent investment for buyers. As long as the market continues rising during the construction phase of 2 to 3 years, the buyer has the opportunity to develop equity for a modest portion of the eventual purchase price.
People should be aware that the market does not always rise in the short term. Your money may be better spent on a built property, so you have a place to live right away or be able to roll over your investments quickly.
However, a presale purchase makes the greatest sense for two reasons:
A well-informed realtor can help you determine the best type of condominium for you, calculate the best mortgage, and provide information on the timeline for the purchase.
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