Purchasing Pre-Construction: An Overview

The idea of pre-construction can be off putting for some. “Do I really want to put a huge investment into something I can’t even see yet?” Although it may seem risky, it’s a lot less dicey than you may think – as long as your do your research!

The process works like this: developers receive approval to build from the city, and they launch their project. Along with selling a certain number of units, they must agree to certain terms, such as investing in improving the community in which the project is located, etc. Once the predetermined number of units is sold and the developer secures financing, they can begin to build. Essentially your contract states that you are purchasing the right to own a unit, since it doesn’t yet exist. Once the building reaches the “occupancy” phase – basically it’s liveable, but things like the rooftop pool may not be finished – purchasers are allowed to move in and occupy their units. Once the building has “closed”, purchasers are allowed to sell their units if they choose.*

Aside from the fun stuff like choosing your floor plan and finishes, purchasing in shiny new unit a pre-construction project can be quite lucrative. There are no bidding wars, and you’re locking in the unit at the current market value without having to pay a large down payment up front (developers have a deposit structure that ranges from upon purchase to closing). Since you are purchasing in the project before it’s built, you are likely able to get a better price than purchasing a unit that is already built. With the steady climb of Toronto housing prices, you’ll still own an asset with a steadily increasing value. For example, you may purchase a two bedroom in Queen West pre-construction today that would cost you $100,000 more if you bought it in two years.

However, there are questions you need to ask yourself before deciding if buying a property this way is right for you. It’s important to understand the costs associated, which developers are reputable, and what your needs vs. nice-to-haves are.

The Importance of Using a Realtor for Your Pre-Construction Purchase

Many people think that Realtors only specialize in resale transactions. This couldn’t be further from the truth!

They owe you a duty of care. If you’ve purchased real estate in the past, using a Realtor may seem like a no brainer. However you’d be surprised how many people walk into a sales centre off the street and purchase a unit from one of the developer’s sales reps. Although a showroom can be alluring, it is VERY important to consult an expert. Your Realtor will have your best interests at heart, and will likely have more knowledge about the developer or the project than you do. It’s important to consult them before purchasing in any pre-construction projects – better yet, bring them with you to the sales centre!

They know more than you do. Another reason to use a Realtor is because they are much more involved in the world of real estate than you likely are. Typically developers sell to investors and well-connected Realtors to start. In this case, going to your part time friend of a friend who happens to be an agent is not the way to go; you need to consult an experienced professional who is deeply involved in the industry. Typically by the time consumers see the pricing for a project via something such as an online ad, the best units may already be gone. This doesn’t mean you shouldn’t buy in a certain project – sometimes buying later into it can be advantageous if you are ableto negotiate things like cash back or the deposit structure.

They’re always one step ahead. If you’re considering buying pre-construction, let your Realtor know as soon as possible. Provide a few areas of interest and a budget, and tell them to notify you when they hear of new projects launching. Broker events are a regular occurrence with project launches, meaning Realtors will get access to the project before it goes public. Like most things, it’s always better to have an inside advantage!