Have you ever caught yourself staring at a flashy scaffolding print on your way to work, dreaming of a home built just for you? You're not alone! The idea of owning a pre-build condo is alluring, whether it’s your first property or your fifth.
2022 saw builders put shovels to dirt on over 250,000 units nationwide, and the Greater Toronto Area is set to see a record-breaking 32,000 units completed in 2023. As future homeowners eagerly prepare for their new builds, I wanted to explore the why and what their purchase experience will look like as they move through the pre-build condo closing process. You never know, you might be in their shoes someday.
Why a pre-build?
The top three benefits of a pre-build come down to:
- The ability to arrange a down payment schedule that works for you. Unlike a resale property, where you’re required to have the entire down payment upfront, a condo builder typically offers a more flexible arrangement. This can involve post-dated deposit cheques spread out over six to 12 months or even longer, allowing you to accumulate your down payment in a way that suits your financial situation.
- The potential for appreciation in value. When you buy a pre-build condo, you're investing in a property that's little more than a colourful brochure. However, the time it takes to construct a high-rise condo building can work in your favour, with the value of your unit potentially increasing by the time you take possession.
- Everything pre-owned comes with its own kinks and quarks — and homes are no exception. Ask any homeowner you know, and you’ll find that they probably own more than a couple of tools (and that’s not a coincidence). Buying a new home that comes with a warranty can be a good idea, but how much that’s worth to you is a question of personal choice and more than a little luck.
Of course, there’s a lot less hand holding with a pre-build because of the timeframe, so buyers often find themselves lost at sea when the builder reaches out with occupancy warnings. Deep breathing and a step-by-step process review will often help in this situation.
Knowing what to expect and when to expect it helps make sense of a seemingly chaotic process of buying a home. Let’s look at the “money” side of buying a condo from a builder and what you can expect to happen.
Milestones to expect
Agreement of purchase and sale
Congratulations! You've just signed an offer. The clock is ticking — you have just ten days to seal the deal on your property. This is your chance to make sure you’ve dotted your I’s and crossed your t’s before you take the plunge.
Next, you'll need to arrange a mortgage pre-approval that meets the specific requirements outlined by the builder. And while you're at it, it's also a good time to consult a lawyer who specializes in real estate law to guide you.
This is your chance to make sure everything is good with your assignment clause or if development charges are capped. This is also the stage in the process for meaningful negotiation with the builder, so take full advantage of it.
Deposit cheques
Typically, condo builders will have a schedule for dripping in your 20% deposit in a series of post-dated cheques that will cash out at predetermined intervals and get added to your account with the builder. This helps the builder manage their cash flow and ensures that you're committed to the purchase. Be ready with your money when the time comes.
As the construction process nears completion, the builder may contact you for additional details, like the colour selection and that sort of thing. But those are fun problems, so I'm sure you'll figure those out just fine without me.
Pre-delivery inspection
Once your unit is ready, the builder will invite you to see it, show you the finished product, and have you voice any last-minute concerns. That's when you point out any problem spots and document them.
Being called in for a pre-delivery inspection means you'll get occupancy soon and should prepare accordingly.
Interim occupancy
This is when your unit is ready to live in but is pending government registration to transfer the title (a later milestone known as final closing). Some amenities will be available for your use, while others may still be tested from time-to-time, like the fire alarms.
Because you have the right to occupy your place but still haven’t fully paid for your new unit, you'll be expected to provide the builder with monthly installment cheques, essentially interim 'rent', to cover their expenses until the final closing.
The interim occupancy period can vary from a few weeks to months, depending on the project and municipality, among other factors.
You’ll also receive an Interim Statement of Adjustments outlining the high-level numbers for your unit, including purchase price, upgrades and deposit funds you’ve given the builder. With that in hand, you can begin shopping for a mortgage, and, by extension, all the terms of your upcoming mortgage.
Line up your money
Let’s focus on financing — this is the time to arrange your mortgage. Check out some of my other blog posts to brush up on the relevant features of a mortgage and how to select the ones that are right for you.
When it comes to closing costs, things can get tricky. Remember those development charges? You should account for land transfer taxes and title insurance in your calculations. If you’re feeling overwhelmed, ask for help with preparing a budget. It’s okay. You don’t do this every day. But the good news is, I do!
If you're buying an investment condo, it's important to reach out to your accountant about the best plan for paying and claiming back any HST you may be responsible for at closing.
There are some costs you can roll into your mortgage and others you can’t. Be sure to line up those that can’t.
Final closing
On the final closing date, your bank will advance your mortgage, and your lawyer will work with the builder to swap money for the title. A lot went into getting you here so be sure to celebrate your new place — you deserve a drink!
