Make a List of Preferred Developers

You often get what you pay for, so seeking out the cheapest property is not the best route. First, work with your real estate agent to make a list of preferred developers. You want them to be well-established and have positive feedback online. You can visit resales in their completed buildings to get a feel for the quality of their finishing and review the strata corporation minutes for these buildings to see if they have had any structural issues after completion.

Visit presentation centres

Ask your realtor to look at developments that have recently been approved for rezoning by the city. They may not have a presentation centre yet, but they will be marketing their homes soon, and they haven’t been picked over by any other buyers.

Before you visit a presentation centre, ask your realtor to provide you with the marketing materials and available floor plans. Ask your agent to explain how the construction site location will meet your “Neighbourhood Requirements.”

Also, ask the agent to highlight how well the units in this development meet your requirements and which elements will need to be addressed by the developer’s representatives in the presentation centre. 

Before you step into a presentation centre, have a plan for which units you will consider and a negotiation strategy. You may want to initially express interest in a condo that is cheaper than the one you wish to buy so that they can ‘up-sell’ you to the one in which you’re interested. Depending on the market conditions, they may offer an incentive for the ‘up-sell.’

When you visit the presentation centre, rather than only relying on their description of the development, bring along your “Home Requirements” and “Neighbourhood Requirements” so that you can be sure to ask all the critical questions. Sometimes, new developments include neighbourhood amenities like daycare and grocery stores, so both requirements lists are still relevant in the presentation center.

We recommend that you visit at least 5 presentation centres before you begin thinking about making an offer. A great house may slip through your fingers while you get familiar with the market, but you won't know what a perfect condo looks like until you’ve seen a few presentation centres. Remember, this isn’t a real estate television show where you must choose from only three homes the realtor has shown you; you should take your time.

Making an Offer

It may take a few months of looking at homes before you feel confident you have a good deal. You should have an idea of the value of a condo before you walk in the door. Remember, the list price is only a reference point, and often, you can negotiate for cash back, move-in allowances, or extra parking spots and storage lockers at no additional cost.

Here are some tips:

• Check how long the presentation centre has been open – if it’s been a long time, then there may be room to make an offer below the list price.

• Research presentation centres you want to see and plan a route so that you move from North to South or East to West, rather than crisscrossing the town.

• Wear a comfortable casual but work-appropriate outfit. Think business casual or jeans day. You want the developer’s realtor to take you seriously.

• You can negotiate the deposit amount. This is particularly important if you plan to get financing for more than 80% of the value of the home.

• Monthly condo maintenance fees in new buildings are typically set very low by the developer to make the homes appear more attractive. As a rule-of-thumb, you should expect that in 5 years, your monthly strata fees will climb to at least $0.40 per square foot.

• Ask about the expected closing costs (more on this later).

Deposit Structure

When you make an offer, you can negotiate the deposit structure.

Pre-construction condos usually require a deposit of at least 20%. Although this seems high when compared to buying a ‘used’ or ‘resale’ home, in the end, your deposit will be equity in your home. The full deposit is typically divided into smaller amounts spread out over a few months. This payment schedule is called the deposit structure.

Here is an example of a typical deposit structure for a condo that costs $500,000 with a 20% deposit ($100,000 total deposit):

1. $5,000 with the offer

2. $20,000 (5% of the purchase price minus the initial deposit) within 30 days

3. $25,000 (5%) within 60 to 90 days

4. $25,000 (5%) within 90 to 180 days

5. $25,000 (5%) at occupancy

Deposits are generally required to be higher for the condos sold at the beginning of a project when the presentation centre first opens. Once the developer has pre-sold enough units to cover the cost of construction, they feel more comfortable relaxing the deposit structure.

Often, deposit payments are expected in the form of pre-written cheques, held by the developer and deposited at pre-agreed dates.

As a development nears completion, deposit structures become more negotiable, and you may be able to extend or even reduce your deposit payments.

Close the deal

The ‘Cooling-off Period’

After you sign the purchase contract, there is a ‘Cooling-off Period.’ To protect homebuyers who may have got over-excited in the presentation centre and over-extended themselves, buyers have several days to back out of the purchase. Each province has different laws for the cooling period. By law, everyone is entitled to some time to contemplate their purchase decision. During the cooling period, the home is 100% committed to you, and if you back-out, you get all your deposit money back. The number of cooling-off days varies by province, but typically, it is 7 to 10 days.

If you change your mind during the cooling period or decide you are not satisfied with the contract, you have the right to cancel it at this time with no questions asked. There will be no financial penalties, and your post-dated cheques are returned to you. If you choose not to proceed, speak to your agent about what to do next. Your agent can take your purchase agreement and other documents to the seller and have them cancelled. 

We strongly recommend that you take this time to find a real estate lawyer with experience in pre-construction purchases to help you review the contract during the cooling-off period. Your lawyer should review the reasonableness of the closing costs you will incur. It is best to use a real estate lawyer who has experience dealing with the same developer. Their experience with the developer will help them anticipate any potential issues you may have closing or completing the purchase.

You should also get a mortgage pre-approval or commitment letter in place with your lender. It’s not necessary at this stage, but it’s a good precaution.

Closing Costs

Closing costs are additional expenses that you will need to pay for, between the time you make an offer and the day that you close, including a home inspection fee, legal fees, land transfer tax, CMHC insurance, and sales tax.

We suggest that buyers set aside 1.5 - 4% of the purchase price of their home to cover their closing costs. When you buy a pre-construction condo unit, however, that number can be even higher.

When you buy a new condo, you may be subject to additional fees, including:

• Development and educational levies ($200-$4,000)

• New Home Warranty Plan enrolment fee ($900-$1,200)

• Utility hook-up fees ($50-$500)

• Assignment fees (if you sell before final closing, or flip your unit) ($3,000)

• Occupancy Fees

These additional costs do not apply to every pre-construction purchase, and, in some cases, you can negotiate for the developer to pay them on your behalf.

Pre-closing Inspection

A pre-closing inspection occurs about 10 days before closing. The inspection only allows you to call out ‘material’ deficiencies.

Pre-sale contracts usually allow developers to substitute materials and finishing to a large extent. The quality of finishing, the make and model of appliances, and workmanship may be described in the marketing materials, but they are usually not stipulated in the purchase agreement.

As well, there is a “no warranties or representations” clause in purchase contracts that prevents the buyer from relying on any marketing materials or verbal promises made at the time of sale unless they are written into the purchase contract.

In general, you shouldn’t rely on the pre-closing inspection, but instead, choose a developer with a great reputation and solid track record.

Occupancy Period or Interim Occupancy

When you buy a pre-construction condo, you may run into the situation where the builder lets you move into your unit before the rest of the building is complete, and ownership of the home is transferred to you. Depending on your province, this timeframe is known as your occupancy period or interim occupancy period.

Since the building isn't finished, and you don’t own your unit, you don't need to start making mortgage payments. However, you will need to pay the developer an occupancy fee for each month that you live there until you eventually take ownership.

Occupancy fees allow the builder to break even the cost of you living in their building until it is complete.

Because this amount is likely to be cheaper than renting an apartment, you may find it appealing to move in early to get settled in your building. During the occupancy period, the elevators will be in service. However, most of the amenities will not be open for use. As well, there may be a lot of construction noise in and around the building during working hours, while the builder finishes other units in the building. Typically, the occupancy period is shorter for homes on higher floors.

You can sometimes avoid occupancy fees by paying the entire purchase price with cash at the date of occupancy. To do this, you have to have it written into your initial purchase contract.

Home Insurance

During the interim occupancy, you will need tenant insurance. However, once the final closing comes, you will need to cancel the tenant insurance and replace it with homeowner insurance. Be careful to make sure you do not have a gap in insurance coverage.