Pre Construction Condo Payment Schedule:
How Deposits Work When Purchasing a Presale
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
If you want a realtor to represent YOUR best interest & not the developer’s, call me today!
If you’re unfamiliar with the pre construction condo payment schedule process and are wanting to learn more then you’ve come to the right place! There are a number of differences between presale and resale developments, and one of them is the pre construction condo payment schedule and the way that deposits are dealt with. We’ve put the most common questions that we are asked in an easy to read format so that you can get up to speed with the basics!
With that being said, if you’re thinking of purchasing a presale property, it’s important that you have a realtor working in your best interest and not the developer’s.
*We don’t work for the developer – we work for YOU!*
For more information on why to hire a buyer’s agent when purchasing a presale, check out our blog here: 8 Reasons To Hire a Presale Realtor
What is the minimum amount of deposit money that I need to secure a presale property?
There is no cookie-cutter answer for this question, and that is because each developer stipulates what the deposit schedule is.
One of the main differences between presale and resale purchases is the deposit. While there is a “standard” expected deposit in resale properties of 5% due upon subject removal, the amount varies greatly in presales and can be anywhere between 15-25%!
The lowest amount of deposit I’ve seen for a presale is 5%, and I have seen up to 30%. Keep in mind that while resales are typically a one-time deposit, the presale deposit typically works as a payment schedule over a period of time. Therefore, if there is a 25% deposit required you do not need to pay 25% upfront.
Point is, if you’re interested in a presale property you should be prepared to pay the developer a much larger deposit than you would in a resale transaction.
The difference between a deposit & down payment
Keep in mind that if you are purchasing a presale as an investment property you will need a minimum of 20% down.
Therefore, even if the DEPOSIT required by the developer is 15% over a 16 month period, at the time of completion you will still need to come up with a minimum of 5% additional funds to put towards your DOWN PAYMENT.
If the deposit required by the developer is 25% over a 16 month period and you are purchasing this property as an investment, then you have already hit the 20% minimum down payment requirement and have the option to finance the remaining 75% by form of mortgage or put additional funds down.
For more information on the difference between deposits & down payments, check out this blog: Deposit vs Down Payment – What’s the Difference?
How does the deposit payment schedule work for presales?
Unlike resale properties in which the deposit is due upon subject removal, presale properties are paid over a period of time. Usually a set amount (i.e. $10,000) is required when the agreement is first signed, and will be held in trust by the developer’s lawyer or their real estate representative’s brokerage.
After you have put a deposit down on a presale, you have a legal 7 day right of rescission – which can be thought of as similar to a subject removal period in resale. You can take time to confirm that your finances will be in order for the future completion date, and have your real estate lawyer review the Contract of Purchase and Sale.
If you decide during this 7 day period of time that you will not be proceeding with the project, then you are entitled to receiving your initial deposit back. Alternatively, if you proceed with your purchase and pass the 7 day rescission period, then the developer will have a specified deposit schedule in the original contract.
What might my deposit payments look like?
Here is an example of a common deposit structure:
- $10,000 with the offer
- Balance of 10% within 7-10 days of acceptance
- 5% at 3 month mark
- 5% at 12 month mark
- 5% at 18 month mark
Based on the above example you have paid 25% over a period of 18 months. When the condo is ready for occupancy and completion occurs, then you will have the option to increase your down payments funds to complete
Remember – the example that I have listed here does not apply to all presales as each developer has the right to determine their own deposit schedule and terms in the initial contract.
What is the 7 day rescission period in BC and how does that tie in to my deposits?
In British Columbia we have something called the 7 day rescission period, also known as the cooling off period.
This gives the buyer the right to consider their presale purchase and whether they would like to proceed for a total of 7 days. If the buyer decides not to proceed with the purchase within the 7 day period, then they receive any initial deposit they may have put down back.
If they choose to proceed with the purchase, then they would notify the developer that they are passing the 7 day rescission period and continue to hand in their deposits as per the deposit schedule.
If a buyer backs out of the contract after the 7 day rescission period has passed (excluding assignments), then they will be forfeiting their deposit money.
Where is my deposit held? Can the developer spend it?
Your deposit is held in a trust account, so this is not money that the developer can spend and walk away with if he doesn’t complete the build.
Who the deposit should be made out to will be stipulated in your contract, but it is typically made out to one of two entities:
- The developer’s realtor’s brokerage, in trust
- The developer’s lawyer’s account, in trust
If the developer is asking you to write a bank draft out to a different entity, it is best to consult your realtor and/or proceed with caution.
What form of money does my deposit need to be paid?
A deposit is typically paid by form of bank draft or wire transfer. You cannot pay a deposit by a personal cheque.
Check with the entity that is receiving the deposit, along with your contract to find out how to pay the deposit and the exact name of the account it should be made out to.
Know your contract!!
It is very important when purchasing a presale to be crystal clear on the pre construction condo payment schedule and the terms of the contract. Keep in mind that every project is different, and therefore every schedule is different – so it is very important to ensure that you are safe, protected, and extremely familiar with the contract that you are signing.
Pro Tip: Having someone that is familiar with presale contracts, protecting you throughout the process, making sure that your deposits are made out to the right person at the right time so they aren’t forfeit, and more will ensure that your presale purchase is profitable and done right! The developer’s sales staff is there to work in the best interests of the developer – NOT YOU. Hiring a realtor to help you with your real estate purchase is FREE SERVICE – you don’t pay commissions. Learn more here –> Why you should hire a realtor for a presale
Now that you have a rough idea of what to expect with a pre construction condo payment schedule, it’s important that you keep learning everything about the real estate presale process from an experienced professional. The presale market is very different than the resale market, and there are a number of risks and speed bumps that a realtor can assist you with.
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