It goes without saying we are big fans of presale properties here at Momentum. From first-time buyers to investors expanding their portfolios, new residential developments are a great opportunity for almost any type of buyer as they offer many advantages that are hard to match when compared to resales.
Presales give buyers extra time and flexibility to finance the purchase, which may reduce some payable taxes; they might also offer buyers the chance of customizing their property before it is even built – and the list of “pros” goes on. However, we also know that purchasing presale comes with its own set of risks since you will be selecting your property of a floorplan rather than a finished home that you can walk through, touch, and see with your own eyes.
Here are six things you need to know to minimize your risks when buying a presale home:
1. Do Your Research On The Developer
You saw a great online ad, signed up on the project’s website and you feel like you finally found a new home to call yours. Before you start picturing family meals in your (so far, imaginary) dining room, find out everything you can about the development’s builder.
Look for answers to these questions: Is the developer established and reputable? How long have they been in business? Are they experienced in building this type of home (detached, condo, townhome)? Do they have a good track record on the quality and delivery times? You can also try to find testimonials from people who’ve purchased from them in the past and maybe even visit some of their buildings and/or construction sites to see what they look like in person.
2. Look At The Development As A Whole
Look at this new property not as a stand-alone home, but at everything the building and its location have to offer. Learn more about its amenities (if applicable) and how/if they will serve your lifestyle – after all, why pay fees to maintain a pool if you don’t like swimming?
Drive and walk around your new neighbourhood to discover all pros and cons of its location. Find out how easy it is to access general services, schools, transit, highways, and any other essentials you will need now or in the future.
3. Ask About The Deposit Structure And Other Potential Costs
Each new home development will have its own deposit requirements that cover amounts and payment structure. It is common to see initial deposits range from 5% to 10% when writing the contract, with incremental amounts going up to 20%. This deposit will be put towards your down payment at closing and the balance of the funds is usually due at completion.
Also, keep in mind that the “price tag” you see is likely not the final cost of your new home. All new residential properties are required to pay GST at completion. Plus, if you select any optional upgrades and/or special customizations, that amount will be added to your total.
4. Know the Strata Stuff
In a resale, you have the chance to review strata docs to determine how they approach issues, how often they meet, proven operating budgets, and so on – that is not the case in a presale. New developments will create the Strata Council from the ground up and fees will vary widely depending on the building’s features and its location.
If you want to get a better picture of what the strata fee will look like, ask the developer for a disclosure statement. This is a document that includes an anticipated monthly amount per square foot, but keep in mind that these estimates are made years in advance and may not reflect many of the variables that can impact the Strata costs. Also, you can expect to pay more if your development includes “wet” amenities such as hot tubs, pools and water features, and other 24/7 services.
5. Understand The Top 3 Risks
Financing: While you may qualify for a mortgage pre-approval today, another assessment will be completed upon completion to ensure financing for the property. Things change and life happens so, depending on how far off your completion date is, you will need to count on a certain level of financial and personal stability to not risk having a major setback in your purchase plan. Moreover, make sure your budget can handle a rise in interest rates before you close a deal.
Market Fluctuation: Predictions and trend analysis are very helpful but no one can control all the factors impacting the real estate market. Whether the market goes up or down, purchasers will still have to complete on their property. This means you shouldn’t count on a “quick profit” if you cannot navigate the risk of absorbing losses in case the market goes down.
Policy Changes: Just like the market itself, the rules applicable to real estate are in constant evolution. Think empty homes tax, foreign buyer tax, short-term rentals regulation, mortgage stress tests, interest rate hikes, speculation tax… Policy changes are part of our lives.
6. Choose A Realtor With Lots Of Experience in Presale
Just like you’ve put work in selecting the right development by the right developer, it is crucial to choose a Realtor with plenty of experience with presales in the neighbourhood you are targeting. They should be knowledgeable and ready to offer insights on the pros and cons of local developments and builders. A good presales Realtor will be able to offer you industry-specific information and advice that will remove any doubts and give you the confidence to buy your dream home.
The best part: the developer is responsible for paying him or her a pre-arranged commission, so you do not need to worry about having to plan for extra costs.
If you’re thinking of buying brand new… we can help! Reach out to our presales team at email@example.com.