The practice of buying a preconstruction condo is appeal to many people, but it’s important to fully understand what one is getting into before taking the leap. Before you let the idea of buying a condo that no one else has ever lived in before, read this.
Deposit
In most cases, you’ll have to pay a deposit upon signing the purchase agreement. Whereas when you purchase a resale condo the deposit with usually be somewhere in the neighbourhood of 5 percent, that amount will usually be much higher on preconstruction homes. This is because those funds are needed to go toward the construction of the condo itself. You could be required to pay as much as 20% on a preconstruction condos purchase. You’ll usually have to pay a certain amount when you first sign the agreement and the balance at an agreed-upon later date. Bear this in mind when you are budgeting for your purchase.
Cooling-off period
In Ontario, when you purchase a new condo you have 10 calendar days – not business days – during which you can change your mind on the purchase. If you do decide to change your mind during that time, you can back out of the contract and have your deposit returned to you without any penalty.
The best laid plans
When you purchase a preconstruction condo, you will be given an estimated completion date for the project. Be aware that this is just an estimate and condos are rarely ever completed on time. Builders have the right to delay their construction for many different reasons, so it’s usually advisable to add an additional six months to a year or even longer on to the estimated completion date and plan accordingly.
Things change
As much as it may not seem right or fair, builders actually have a fair amount of leeway when it comes to making changes to their buildings or even to units themselves, even after they have been sold. They can add floors, subtract floors, change the layout, etc. If you are going the preconstruction route, you may need to resign yourself to the idea of being flexible.
Expect condo fees to rise
Condo fees for new buildings are often artificially low. Whether this is to attract sales or because the condo owners don’t yet know exactly how much it will cost to run their building, it’s wise to expect condo fees for preconstruction condos to increase dramatically over the first couple of years.
Additional closing costs
When you purchase a preconstruction condo, you will have to pay a variety of closing costs, many of which don’t apply to the purchase of a resale unit. This includes utility connection fees, HST on appliances, development costs, and more. Be aware that these fees can add a few percent on to the overall cost of buying the unit.