Thinking about buying a pre-sale in new construction? There’s a few things to consider.
As a buyer there are some risks included in pre-sales. It is very important to have a realtor you trust to help you fully understand the process.
A pre sale is a concept or an idea. You cannot see or touch it. Have your realtor accompany you to the showhome to get a good idea of what is planned, understanding that the developer can make modifications and change supplies or materials used due to cost and availability. Ask lots of questions to the developer’s representative in the showhome, not all units come with parking and storage and the developer can unilaterally assign parking and storage so this needs to be specified in a contract of purchase and sale. Make sure that parking and storage are not part of a sub-lease the developer has.
Make sure you understand the financial requirements. Does the purchase price include GST, PST or have any tax exemptions? Understand that over long completion times prices to build can change in terms of materials and supply but also in labor availability. There are no hold-backs allowed for deficiencies, developers do not want to have unhappy new home owners so problems will be addressed but it may take time to complete any deficiencies.
Make sure you understand the deposit process. When you pay your deposit, it is paid to the developer’s lawyer, not your realtor’s brokerage to be held. Check to see if there is a provision in the contract of purchase and sale that the developer may use the deposits if they are held in an insured fund. There is no interest accrued on deposits. If the pre sale does not come to fruition and your deposit is returned, it will not have any interest accrued on that balance. In case a buyer is unable to complete on the purchase once the building is ready for possession and they are in breach of contract, the deposit will be lost to the buyer and there is the potential of being liable for damages to the developer. If the developer is unable to finish the project and is in breach of contract, the buyer will get their deposit back, but there are no further legal remedies.
No assigning your pre sale. Assignments are where a buyer is able to assign or sell their pre sale to a new buyer before the building is complete. When working with a developer there are no assignments in pre sales so once you commit, you are in it until the end. Occasionally developers will allow an assignment on special request. The developer can delay approval of any assignments until the last unit is complete so they are not competing with anyone on the sales of their units.
Completion is rarely on time. The building is complete when it is complete. Period. Buyers are given 14 days notice of completion so you need to keep your financial situation ready from the time you put down the deposit until the building is ready for possession. The completion date is not a guarantee, so never bank on the one stated in the contract of purchase and sale. Even if the developer misses the last outside date, they can still be granted extensions so a buyer is stuck until the building does complete.
Always remember that the Disclosure Statement a buyer receives prior to entering a contract of purchase and sale can and likely will be amended many times. The Disclosure Statement is not a part of the contract of purchase and sale but is a part of the marketing.
Always always have a lawyer review the contract of purchase and sale before you commit so that you understand the legal jargon and requirements of buying into a pre sale. As realtors we have amazing lawyers we work with and we are happy to help with this!