Buying Pre-Construction – Pros & Cons
Southern Georgian Bay has gone through a growth spurt recently, and a real estate market with a sustained period of record setting low resale inventory. This has resulted in new opportunities for development in towns across the region and forced some home buyers looking for resale to consider turning to the new home market.
If you are considering pre-construction, using a REALTOR® is key and find one knowledgeable in pre-construction agreements, as well as the developer’s reputation and past projects.
Pros and Cons of Purchasing a Pre-construction Unit
- You can customize your new home. When you buy a pre-construction unit from a builder, you have a lot of options. You can select your layout, flooring, tiling, kitchen cabinetry, bathroom fixtures, finishes and options.
- Today’s pricing is locked-in. When you purchase a pre-construction unit, you’re locking in a price today on the assumption that the property will be worth more when completed.
- New Home Warranty. A standard Tarion Warranty covers your unit as the condominium’s common elements and covers various components from 1 – 7 years from the time of occupancy. The province is in the process of changing the program from Tarion to a new governing body but will still offer the warranty.
- If they build it? “In 2018, Ontario saw a steep rise in the number of condo projects being cancelled by builders. The numbers are shocking: more than 4,000 units will not be built as a result of project cancellations, beating the 2017 record of 1,678 cancellations. The reason for the cancellations vary – from failure to obtain the number of units desired to make the project feasible to simply underestimating the cost of the build and bankruptcy. While the builders walk and often build elsewhere, the buyers are stuck with a variety of losses.”*
- Timing. If you’re looking to move into your unit in the immediate future, pre-construction is probably not the best option. You don’t have much control. It can be years before you can move in, with potential delays slowing things down even more. Plus you could be moving into an unfinished building, with amenities that won’t be ready to use for months.
- Buying from floorplans and renderings. Purchasing pre-construction will give you access to artist renderings, floor plans and site maps, a scale model, samples of finishes and possibly a model suite – but you will not see the final product until your pre-delivery inspection.
- By Ontario law, you have a 10-day rescission or “cooling off” period when you purchase a condo from the builder. During this time, it is important to have your agreement reviewed by an experienced real estate lawyer and to ensure you can get financing for the property once completed. If something doesn’t work out within this window, you can legally cancel the agreement without penalty. Be sure to ensure your contract includes an assignment clause that allows you to sell your interest in the property prior to financial closing. There could be unexpected events between purchase and closing that make it impossible for you to close, especially if it is more than one year or more to move-in.
Research The Builder
- Check Tarion. New homes builders must be registered with Tarion and maintains the Ontario Builder Directory. Searching this directory will ensure that the builder is registered with Tarion, which affords certain protections if the project is cancelled or poorly built. In addition, the directory provides information about claims against the builder.
- Go online. Google the builder’s name and projects and see what comes up!
- Talk to home owners already in the development if it is being built in phases or visit the builder’s other projects. Ask about quality, any claims, was move-in date on time?
- Review the Financial Document. This will tell you if a project is well capitalized, reveal the quality of materials being used, how many fees you will be responsible for (such as development charges) and if the reserve fund will be healthy and able to withstand any massive repairs.