Buying Presale Real Estate in BC
Pros and Cons of Buying a Presale Condo & FAQs
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
If you want a presale realtor to represent YOUR best interest & not the developer’s, reach out to our presale team today!
Pre-construction, or presale, properties in real estate are typically defined as homes that are being sold by a developer prior to them being built – hence the name! Presale properties are often in the form of condo buildings, but can also be townhouses, houses, or multi-family homes.
Because these homes are not tangible, there are many complexities that come with purchasing a presale property that differ from resale homes. Some of the differences when it comes to resale vs presale homes involve financing, processes, timelines, and more.
In this blog, we have compiled some Presale Frequently Asked Questions (FAQs) for everything you need to know about presales!
What is a presale property?
A presale property is typically defined as one being sold pre-construction that is sold by the original developer, and therefore has never been lived in. Because it has not been built yet and in the “pre-construction” phase, a presale property is not tangible and therefore the buyer is purchasing a contract with a promise of receiving the home once it is built.
While most presale homes are condo units, there are also situations where townhouses, duplexes/multifamily, or houses are pre-sold as well.
Typically, the completion and possession for presale homes are longer than resale homes. For condos you will often see build times of 3-8 years depending on the type of development and what time in the sales process you are purchasing, and for townhouses or houses you are often seeing a 2-3 year completion waiting period.
Pros and Cons of Buying a Presale Condo
Pros of Buying a Presale Condo:
- Brand new home, never been lived in
- Full 2-5-10 warranty coverage
- Ability to get into the market now without needing to qualify for a mortgage now
- Time to save
Cons of Buying a Presale Condo:
- Mortgages aren’t locked in until closer to completion, providing a risk as it will be based on the future (e.g. interest rates could rise causing higher payments)
- Stability in job/income required as re-assessment is at completion
- Potential for delays with the completion
- Less tangible, you don’t get to physically see the finished product when you purchase it
What are some of the differences between presale vs resale homes?
When deciding between presale vs resale homes, there are a number of factors to consider.
Common differences between presale vs resale homes include:
- Resale homes typically complete sooner than presale homes
- Resale deposits are typically 5%, whereas presale deposits are set by the developer and are often 15-20%
- Resale homes are tangible, whereas presale homes are not yet built yet
- You don’t have to lock in your financing right away for presales, and your payments for the mortgage start don’t start until their completion date so it gives more time to save than a resale home
- GST (5%) applies to presales (ie tax differences)
- There are different tax exemptions for presale vs resale
What is the rescission period in presales?
The rescission period is a 7 day period that allows you to do your due diligence and back out of the contract within the 7 days if you no longer wish to move forward with the property. It is similar to the subject removal period in resale, however, with the presale rescission period you can back out of your contract for any reason whereas in resale you can only back out if it relates to one of the included subjects in your contract.
This 7 day rescission period allows you the time to get more familiarized with the project, the developer, and most importantly review the disclosure statement. This disclosure statement outlines the project as a whole, and contains important information such as the bylaws that includes any restrictions (e.g. pet, smoking, etc.) you should be aware of.
How much is a typical deposit in presales?
The deposits in presales range because they are up to the developer’s discretion; however, it is common to see a deposit schedule set out of a period that amounts to a 15-20% total deposit for most presales. There are cases where we have seen as low as 5-10% if special incentives are being run, and have also seen some deposit schedules as high as 25% for luxury product.
How do deposits work in presales?
Deposits in presales given over a period of time outlined by the developer in the contract, are typically by form of bank draft or wire transfer and are always held by the developer’s lawyer in trust.
The deposit schedule can vary greatly from project to project, although it is very common to see at least an initial deposit within the first 7 days from acceptance that is either taken in full at the rescission period, or split in to two parts where a portion is given at acceptance and the remainder of the balance at rescission.
An example of a common deposit schedule is as follows:
- $10,000 upon writing (Initial Deposit Part 1)
- 10% less the initial deposit due at the 7 day rescission period (Initial Deposit Part 2)
- 5% in 6 months (2nd Deposit)
- 5% in 12 months (3rd Deposit)
In the above example, the 6 or 12 month period may be replaced with a due date that lines up with developer financing approval, building permits, or amendments to the disclosure statement.
If you choose to back-out during the 7 day rescission period, then any initial deposit will be returned to you.
Should I secure financing during the rescission period?
It is not a requirement to secure financing during the rescission period; however, we recommend having a conversation with a mortgage broker during this period of time so that you are aware of the risks and financing expectations to be able to complete.
While most mortgage brokers can only do 120 day rate holds, there are presale mortgage brokers that can actually help to lock in your financing during the rescission period for presales and offer long term rate holds.
There are some banks (eg RBC, TD) that will actually provide long term rate holds (some up to 5 years, vs the standard 120 days) that could help to mitigate the risk of rising interest rates come your estimate completion time. There is also often an option to get a blanket appraisal, which would reduce the risk of the home being worth less at completion than what you bought it for. (ie market changes)
Regardless of whether the above option works for you or not, touching base with a mortgage broker during the rescission period can provide valuable insight on your future pre-approval and make sure that you shouldn’t have a problem when completion rolls around.
Are there different taxes that apply with presales?
Yes! GST (5%) is applicable to the purchase price on all presale properties and is one of the big differences between presale vs. resale properties (as resale does not typically have GST applied to the purchase price).
Depending on your purchase price, property transfer tax may also be applicable so make sure you are aware of your taxes prior to finalizing your purchase.
What are the property transfer tax (PTT) exemptions for presales?
With presales, you may qualify for a property transfer tax exemption if:
- The property has a fair market value of $1,100,000 or less
- You are purchasing the property as your primary residence
- You are a Canadian citizen or permanent resident
There are also partial exemptions for properties up to a value of $1,150,000.
If you are purchasing a presale as an investment, NO exemption applies.
When are your additional down payment or taxes due? When do your mortgage payments start for a presale?
For a presale, the only payments that are made prior to the completion date (aka you becoming the owner and moving in) are the deposits set out by the developer.
Once your deposit is paid, the remaining payments (e.g. your downpayment, closing costs, etc.) are not due until completion! For example, if you had a deposit schedule of 15% but were planning on putting a total of 20% down, then you would not have to pay the remaining 5% down, any closing costs, taxes, or your mortgage until the completion.
Because you are not technically the owner of the property until it completes, your mortgage does not start until the completion date.
How do completions work in presales?
The completion date in real estate is the day that you become the owner of the property, and typically you will have your possession date follow within 24 hours for presales.
Due to the nature of building and factors outside of the developer’s control, the completion date for presales is always an estimate and can be delayed. The estimated completion date will be outlined in your contract as either a specific date or a range. For example, if the estimated completion is for Spring 2028, you may see it written into your contract as ‘March 1, 2028 – June 1, 2028’.
The developer also has terms in the contract that gives them to right to be able to extend that estimated date range without repercussions. There is typically an outlined ‘Outside Date’ which is the latest estimated date they expect completion to occur – which is typically an extra year added on top of the estimate date range. However, there is typically an additional clause that gives the developer the right to extend the outside date further (eg an additional 6 months) as well as a clause to extend for factors outside of their control.
The developer typically only has to give 10 business days notice for the final completion date. For that reason, you will typically not know the firm completion date until roughly 2 weeks before it occurs.
What are the risks associated with a presale?
Because a presale is not yet built yet, the common risks can be:
- Changes to the market conditions (ie if the market drops)
- Changes to the interest rate conditions (ie rate is higher than expected)
- Changes to the financing qualifying requirements (ie rules change and you can no longer qualify)
- You’re not buying something that is built yet, so your expectation of what it looks like might be different than the reality once you view it
- The developer could potentially terminate the project
- The developer can delay the completion timeline (ie the completion date is only an estimate)
There are pros and cons to resale vs presale homes, as well as ways to help mitigate the risks mentioned above. Talk to a presale realtor to see if purchasing is right for you.
What is an assignment of contract?
An assignment of contract, is where you decide to sell your unit BEFORE completion occurs; hence, you are selling it before you technically even own the property as per Land Title Office.
In this case, the original buyer now becomes the seller and is ‘assigning’ the contract to the new buyer who is agreeing to take over the responsibility of purchasing the property and finalizing completion under their name. In the event that the market value has gone up between the period of time that the original buyer purchased it and when they try to assign it, then the appreciation or “lift” in addition to a reimbursement of the deposit (in part or full) is given back to the original buyer as a part of the sale.
Assignments are typically subject to an assignment fee, admin fee, and real estate commissions that are paid by the original buyer.
However, it’s important to note that you are not completely off the hook when you assign. If for any reason the new buyer can NOT complete on the property at completion, the responsibility will fall back on you.
Am I guaranteed the right to assign a presale?
No, you are not guaranteed the right to an assignment. Assignments are up to the approval of the developer, and there are typically restrictions set out in your contract that you should be aware of.
Typically restrictions for assignments involve:
- Restriction to assign if the developer still has their own units to sell (eg cannot assign until 95% of the market value of the building is sold; or until the development is sold out)
- Restriction to list the assignment on the MLS
- Limit to the number of units that can assign at a given point in time (ie a waitlist may apply)
- Limit to the period of time in which you can assign (eg can only assign 2-12 months prior to completion)
In order to assign, an assignment acknowledgement from the developer is typically required.
Are there move-in ready presales?
Yes, although this is not common. There are some developments that will have move-in ready product. You will see this in cases where the developer did not sell out of every unit over the time of their sales, or when they have held back some homes to sell at completion.
At this point in time, you can see the unit as more of a “new build” product but the taxes such as GST will still apply in the same way that they do with presales.
What is a deficiency walkthrough for presales?
A deficiency walkthrough is when you are able to finally walk through your new home and claim any deficiencies before moving in. These walkthroughs typically happen 2-4 weeks before your completion date and are typically reserved for the buyers (usually 2 max) and the buyer’s realtor.
This can be a very exciting time as this is your first look after a long time waiting, however, you are usually only given a short period of time to do these walkthroughs and the purpose is to note deficiencies so that the developer’s staff can fix them ideally before you move in. This is the ONLY time you can claim cosmetic deficiencies in the process, so it’s important to be efficient and present during this time.
Having an experienced presale realtor there with you can be extremely beneficial as they have done a number of deficiency walkthroughs and know exactly where and what to look for and at the end of it ultimately save you money. You can also hire an inspector if you wish (and if the developer allows them, as this requires approval), but this will cost you a fee.
Do I need a realtor for presales? What is the benefit of hiring a presale realtor?
When working with a presale realtor, they are there to protect you and offer you the guidance and knowledge to make the best decision for you. They can provide more insight into the project, the developer, the location, and even other projects that may better suit your needs.
Your realtor is also there to assist you through the entire process including reviewing the contract, the disclosure statement and amendments to point out any red flags, as well as remind you of upcoming deposits and provide assistance with the deficiency walk-through and completion/possession. A good presale realtor will also have contacts to connect you with options for presale financing to reduce the risk of a presale.
If you purchase directly through the sales staff then you are choosing to be unrepresented. In BC, a form is required so that you understand that means the developer’s sales staff has no commitment to you to uphold loyalty, full disclosure, confidentiality, or duty to avoid conflict of interests. It’s important that you understand that the sales staff do NOT represent you – they represent the developer – and that while they can be an incredibly helpful resource for the project, their job is to sell the project and work within the best interests of the developer. If you want someone to look out for your best interests and guide you through the project or other potential options, then consider hiring a presale realtor.
