Buying a Condo: Key Differences Between Purchasing Re-Sale vs. Pre-Construction.
There are some key differences between the two.
Here’s What you Need to Know
- Units are available right away. You get to see exactly what you are buying.
- They are sold at Market Price, but you could end up in competition with other buyers.
- You get to determine the closing (i.e. possession) date, which is usually 60-90 days out.
- Financing is required immediately, so you’ll want to have your pre-approval in order.
- Other financial obligations are required immediately, such as deposit, downpayment & closing costs.
- The price may include parking and/or a locker, in some cases.
- Units are typically available/ready in 4-5 years.
- There can often be construction delays, and delays to your closing date for various reasons.
- Units are typically 5-10% lower in price than re-sale units. This is because buyers aren’t likely to pay as much when they can’t actually see the unit.
- Deposits typically start at 15-20% and are paid in installments. You may often have up to 365 days or more to make the deposits, depending on the payment structure dictated by the builder.
- Deposit structures can often look something like this:
- $5,000 on signing
- Balance to 5% in 30 days
- 5% in 120 days
- 5% in 425 days
- 5% in 540 days
- 5% on Occupancy
- Deposits are held in a Trust account (i.e. a safe account, which is usually the Lawyer’s Trust account).
- Units can often have a significant increase in value from the time of purchase to the time of completion.
- Parking & Locker can be an additional cost, if available.
- For example, 1 parking spot could cost around $79,000 +/- (Downtown Toronto), and 1 locker could easily cost $8,000 +/- (Downtown Toronto), in some cases.
Here are some additional things to consider when purchasing pre-construction.
Your life may change dramatically from the time you purchase to the time of completion. This could result in you potentially never living there, in some cases (I speak from experience!!).
You won’t know your exact maintenance fees & taxes. You will only be given an estimate from the builder.
You may be charged an “Assignment Fee” should you wish to sell your unit before you take possession.
Builders usually charge Levies, which is an additional charge at closing. Some developers cap them. For example, this could be an additional $5-6,000 +/-, or even $10,000 +/- in some cases.
HST is usually included in the price.
Financing is required on closing. You may require a pre-approval on purchase, but your final approval, and therefore interest rate wouldn’t be secured, and in effect until the closing date. If this is a few years away, your (financial) situation could change by then, so something to keep in mind! Also keep in mind that interest rates could change dramatically in that timeframe too.
You need to be comfortable with the risks associated with purchasing pre-construction. It doesn’t happen often, but in some cases, builders have canceled their projects.
What about Occupancy Fees?
This is something to be aware of!
What are they?
Simply put, if your closing date is not the builder’s “Final Close”, you may have to pay an Occupancy Fee. This is basically rent paid to the builder until your mortgage can be advanced.
Builders can start moving people in before the building is 100% complete & registered. Before the building is registered, you cannot have your mortgage advanced. This is because you don’t actually own the unit yet, you are just “occupying” it. Ownership is transferred from the Developer to the Buyers upon Condominium Registration.
So instead, you pay an occupancy fee determined by the builder. Once the building is complete and officially registered, your mortgage kicks in.
Keep in mind that the “rent” you pay never actually goes towards your mortgage, or the purchase price of your unit.
Registration can take months, or even years in some cases, so keep this in mind when you are both purchasing, and choosing your floor. The closer your unit is to the top of the building, the more likely your occupancy date will be closer to the Developer’s closing date. This is because people are moved into the building floor by floor, as levels are complete.
So now you have a bit more information about the key differences.
There is no right or wrong answer as to which is better. Whatever you choose must make sense for your particular situation.
For more information, or to ask a question, contact me directly at email@example.com.