A pre-construction home can be the perfect fit for many homebuyers. Many homebuyers prefer a brand new ‘move-in-ready’ home with personalized interior design accents. There’s the added bonus of having a house warranty and fewer restrictions on rentals, too.

However, buying a pre-construction home works differently. It’s crucial to understand the process of buying a presale home, so the process runs smoothly and you avoid any surprises. This guide will focus on pre-construction condo apartment buying because it has a few extra steps:

There are 5 stages to buying a home, but for understanding pre-construction condo purchases (also known as pre-sales), we will focus on the last 3 stages.

• Find a home

• Close the deal

• Move-in

1. How to find a great Pre-Construction Condo

Once you have finalized a realistic budget and have had a mortgage broker pre-qualify you for a mortgage, you are almost ready to begin searching for a condo. First, you will want to:

• Figure out your requirements for a condo.

• Make a list of the amenities you need in your neighbourhood.

• Find a suitable real estate agent.

Define Your Home Requirements.

When defining your requirements, you should be thinking about what you need from your home rather than how you want that need met or potential bonus features.

Separating the ‘what’ from the ‘how’ can be difficult initially, but it’s essential because you don’t want to pay for features you don’t need.

Requirements are features that are structural and difficult to add as part of a renovation. These include features like the number of bedrooms in your condo. To alleviate any confusion, we have provided you with a table below where we have listed possible requirements (needs), wish list items (wants), and deal-breakers (critical needs). List your needs and wants in order of importance. The list we have provided is only an example, and you should create your personalized lists and prioritize the requirements.

Download our Home Requirements checklist templates to begin writing your requirements today!

You want to limit your requirements to those things that you feel are absolutely necessary. The more requirements you have, the harder it will be for your real estate agent to match you with properties that match.

When you have too many requirements, you may be presented with the most expensive properties because they are the only ones that meet ALL your requirements.

If you haven't prioritized your requirements to guide the real estate agent, the agent will use their judgment to prioritize them, and they may not value the same things you do.

Deal breakers are items that you will never agree to and on which you are not willing to compromise. In the table above, they cannot live in a building that allows dogs because of allergies.

Make a list of the amenities you need in your neighbourhood.

This list is similar to the condo requirements list but focused on intrinsic factors to the area where you will be living.

Find a great real estate agent

The key to finding your perfect home lies in finding a great local real estate agent who understands, values, and can relate to your buying requirements. Mortgage Sandbox developed the Match Finder app to match Canadians with local, pre-screened real estate agents based on shared interests and complementary working styles. We believe aligned values lead to better working relationships and a more successful condo buying experience.

Once you’ve got few names, use this guide to interview and qualify your real estate agent.

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 you will want to see floorplans early. If you visit a presentation weeks after the units were released, other buyers will have already taken the best units. Pre-sales are first-come-first-serve, and not all units are identical.

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.”

As well, 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. New developments often include neighbourhood amenities like daycare and grocery stores, so both requirements lists are still relevant in the presentation centre.

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. It would be best if you had an idea of a condo's value before you walk in the door. Remember, the list price is only a reference point. You can often 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, there may be room to make an offer below the list price.

• Research presentation centres you want to see and plan a route to 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 home's value.

• 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 construction cost, they feel more comfortable relaxing the deposit structure.

Often, deposit payments are expected in 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 at 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 between the time you make an offer and the day you close, including a home inspection fee, legal fees, land transfer tax, CMHC insurance, and sales tax.

We will focus on the costs specific to pre-construction purchases; however, here’s a guide to typical closing costs for any home purchase.

We suggest that buyers set aside 1.5 - 4% of their home's purchase price 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.

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.

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.

We have created a comprehensive overview of the many different kinds of home insurance, and you will need to make sure you have the right coverage.

There is only one Canadian insurance company, SquareOne, that allows “made-for-measure” insurance coverage. They are based in Vancouver, BC and offer insurance across Canada.

To get a customized quote from them, enter your address below:

Happy Hunting!

Follow these simple steps with a great real estate agent by your side for a successful pre-sale experience.

Even though the pre-construction condo-buying process is a little more complex than buying a ‘used’ home, there are many benefits. Here are just a few of the benefits of buying a new home.

A Home Warranty

A standard warranty covers your home and common areas, and everything, including the appliances, is brand new.

A Discounted Price

Pre-sale condos should be cheaper than buying an existing home because the pre-sale buyer is taking on some of the developer's project risk. If prices were guaranteed to go up, then developers would always wait until the building was complete before selling the homes.

As well, buyers who purchase early, particularly at VIP sales events, will get the best selection, prices, and occasionally the ability to customize or even combine units.

You Have More Time to Save

Some buyers want the ability to lock in their home and then have months or years to save up for their full down payment.

A Calm Sales Negotiation Experience

In hot markets with bidding wars and limited supply, visiting open houses and bidding in a ‘blind auction’ is stressful.  In these conditions, buying a condo pre-sale is a lot easier than competing against multiple offers. With pre-sales, there are many similar units for sale in the building at one time.

Ability to Rent the Home

New buildings usually have fewer rentals restrictions than older condo buildings. Older buildings often have bylaws that restrict the number, or percentage, of rental apartments permitted in the building.

Find a Realtor and Get Started Today

Get started on your condo pre-sale adventure today by finding a mortgage broker and realtor to jump-start the process.

Us these helpful guides to qualify your real estate professionals:

• Interview and Select a Mortgage Broker for your Mortgage Pre-approval

• Interview and Select a Buyer Real Estate Agent for your Pre-construction Condo