Thinking of buying a pre-construction home? Make sure you know exactly what you’re getting into before taking the plunge. From the developer’s history to locking in mortgage rates, here are some of my top things you need to know before buying (and falling in love with) a pre-construction property.
1. Prepare for Move-In Delays
Building and renovation delays come with the territory. With pre-construction condos and housing developments it’s not unusual to have multiple delays that can last months, if not years. I suggest planning to move in six months later than the original move-in date, and have an additional backup plan just in case. Everyone wants to think it won’t happen to them, but it’s better to be safe than homeless!
2. Be Aware of Developer History
It’s easy to get caught up in the excitement of buying a pre-construction home. Between the marketing tactics used in presentation centres and the promise of something brand new, it’s easy to overlook certain things. No matter how impressive they may seem, however, always do your research on the developer before committing to anything. Take a look at their past projects and note how successful they’ve been in terms of quality and timelines.
3. Consider the Closing Costs
Closing costs are different for every pre-construction condo, but be aware that they can be a little higher than for existing buildings. These can include everything from development charges to initial utility hook-ups. Development charges (or development levies) are fees put on the developer of any new home or condo by the local municipality, and they should always be capped in your contract. If they’re not, you could be on the hook for a lot of money upon closing.
4. Don’t Forget the HST
If you’re buying the home as a primary residence you might qualify for certain rebates, depending where you live. However if you’re buying it as an income property you can’t. Make sure you know exactly what you will owe before you sign on the dotted line.
5. Be Flexible About the Looks
Don’t get too caught up in what the exterior of the building looks like, because it may change. Developers have a certain amount of leeway to alter their plans, so don’t be surprised if colours and materials are different than the plans you first saw. Changes come with the territory so be prepared to be flexible.
6. Lock in Your Mortgage Rates
Don’t wait to lock in your mortgage. Developers often work with preferred
mortgage providers and – provided you qualify – you may be able to lock in now at a lower interest rate than if you wait until closing. But make sure you do your research before committing to anything.
7. Be Aware of Condo Fees
This can happen in any condo, but be aware that your monthly maintenance fees may rise. Developers often try to entice people with low monthly fees, but in a year or two they may go up, and it could be by quite a bit.
8. Renting vs. Owning
When you purchase a pre-construction condo it’s possible that your unit will be move-in ready before the building is totally complete. If that’s the case, you can take occupancy, but you won’t officially own it because the building can’t yet be set up as a condo corporation. Therefore, you’ll have to rent your unit from the developer rather than owning it and paying your mortgage to the bank. Once the building has been registered, the ownership will transfer to you. But before making any kind of move make sure you understand what you’re paying and to whom.
9. Check for a Cancellation Clause
Before you sign a contract see if it’s possible to add a clause that allows you to cancel the sale in case of extenuating circumstances. Job loss, critical illness and other drastic circumstances could prevent you from following through. Make sure there’s something in there that allows you to cancel without losing any deposits or down payment.
10. Hire Your Own Home Inspector
Sounds strange for a pre-construction, right? Wrong. When you go for your pre-delivery inspection with a representative from the builder, bring along your own inspector. It will probably cost you a few hundred dollars, but it’s worth it for the peace of mind that comes with a professional, third party inspector checking everything out.
Photos courtesy of McGillivray Group.