What is a pre-sale?
Developers in BC commonly sell residential units, such as strata-titled apartments and townhomes prior to the construction of the building. In other words, purchasing a pre-sale is not the same as buying an existing physical property, but rather a contract for the right to receive and an obligation in paying for a finished unit at some point in the future. With that being said, there is a lot to love about pre-sale homes, and it’s apparent here in the lower mainland that consumers are selling out numerous multi-residential construction sites. A number of financial aspects should be considered before purchasing a pre-sale home. Continue reading to learn more about what prospective buyers should look out for if deciding to go the pre-sale route.
Outline of steps:
-Research developers and projects
-Pick a floor plan
-Write a contract
-Read Disclosure Statement and do your due diligence during rescission period
-First deposit is due (first 7 days)
-Contract is firm
-Second deposit due in 120 days (depends on developer and their deposit structure)
What is the first step I should take?
With any real estate purchase, pre-sale or resale, it is best to get pre-approved for a mortgage in order to establish a budget and to know what you can afford realistically. Speaking with your bank or financial advisor should be the first step in your home buying process. Feel free to reach out for a financial advisor or mortgage broker contact.
What is the deposit structure?
Deposits can vary depending on the developers, location, and the timeline of the project. You can expect to pay a total deposit ranging from 15-20% of the purchase price, which is often paid in stages of the development. Generally, 10% is due in seven days, followed by 5% in approximately 120 days, and the remaining 5% in approximately 240 days. The developers most likely have requirements set up by their banks, which means that the deposit amount is often fixed. In some cases, developers can offer deposits at 5% or 10% for pre-sale homes that are still available closer to the completion date. It’s in your best interest to fully understand your deposit requirements and timing of payments to make sure the financial side of your purchase goes well.
What kind of warranties are included with a new building?
According to BC Housing Home Warranty Insurance, at a minimum, home warranty insurance coverage includes:
- 2 years on labour and materials (some limits may apply)
- 5 years on the building envelope, including water penetration
- 10 years on the structure of the home
Customizing or upgrading aspects of my Pre-Sale
With most recent pre-sale homes, you can often customize or upgrade aspects of your home before it’s built, such as colour schemes, finishes, floorplans, and more. This saves you the cost and time of doing any upgrades yourself once the development is complete and you’re all moved in. It’s best to discuss this with your realtor or sales agent at the beginning of your purchase, as different developments have different options.
What happens between purchasing my Pre-Sale and its completion?
Most developers will give you an estimated completion date, stating the month and year, but it’s important that you ask questions and fully understand the process as your home heads towards completion. Make sure that your calendar is set or that your realtor is diligent on notifying you on any key actions that need to be done, such as payments and deposits. It’s important to know when to start sourcing insurance, movers, notaries or lawyers as well. You don’t want to find yourself scrambling or rushing when your home is nearly finished. It’s best to stay ahead and on top of these details. Ask me for a copy of a pre-sale checklist.
7 Day Rescission Period and Disclosure Statements for Pre-Sales
By law, developers are required to provide interested purchasers with a disclosure statement. The disclosure statement explains what the developer is selling and illustrates the purchaser’s right under the Real Estate Development Marketing Act to cancel the pre-sale contract within seven days of signing. As a purchaser, you should carefully read and review the developer’s disclosure statement. The Real Estate Development Marketing Act provides that a developer must not enter into a contract to sell a unit unless a copy of the disclosure has been provided to the purchaser and that they have been given an opportunity to read it carefully.
Estimated Strata Fees, CRF and Operating Fund
A contingency reserve fund (CRF) is used to address bigger and irregular projects. For example, repairing the roof or upgrading common area flooring would be funded by the CRF.
Each project’s strata fees will vary, but they are usually announced prior to you signing the contract, so you are aware of what costs you’ll have to pay. It’s also important to note that strata fees are subject to change during or after the one-year mark of a new building being occupied. Pre-sale strata fees go towards an interim budget for the first year of occupancy, and then it is often reassessed based on the occupancy and longer-term considerations around maintenance items and regular wear-and-tear that have yet to be factored in.
Closing Costs
GST
Similar to paying GST on household items or goods for personal use and enjoyment, the same principle applies to purchasing a new or pre-sale home. The GST for new or pre-sale homes in BC is 5% Federal Tax that is paid for at the time of purchase. Details of payment on the GST should be included in your Contract of Purchase and Sale, but you should verify whether the GST is included in the listing price or if it’ll be added on top of it.
Property Transfer Tax
The newly built home exemption reduces or completely eliminates the amount of property transfer tax you pay when you purchase a newly built home up to $750k. Visit BC’s newly built home exemption page for more detailed information on whether you qualify for an exemption on your home. Some examples defined as a “newly built home” include:
- A house constructed and affixed on a parcel of vacant land
- A new apartment in a newly built condominium building
To qualify, you must also be a Canadian citizen or permanent resident and the property must be located in BC, the property must be used only as your primary residence, have a fair market value of $750k or less and be 0.5 hectares or smaller. If your property is valued at over $750k, you will have to pay 1% tax on the first $200k and 2% on the balance of up to $3 million as a one time cost on the total purchase price.
Be sure to read the previous post on the monthly costs of owning a condo or townhome.
604.500.5838
