It seems like Toronto condos are popping up all over the city, with new construction condos being built year round.
While some people need to see a finished condo that is already built to consider purchasing it, many people often feel comfortable and confident to buy a condo off of the builder's floor plans. Before you purchase a pre-construction condo, there are a few things to consider.
Before you enter a builder's site, please keep in mind that your realtor can and should be there with you assist you on this purchase. Many people assume that it makes no difference whether you go to the builder's site with your realtor, but the reality is that by going and registering with the developer without your realtor, you are waiving your right for representation, and becoming the developer's client. By doing this, you will be assisted by the sales staff that are working on the developer’s behalf, and have the developer’s best interests in mind, and not yours.
If for some reason your Realtor is unable to come with you, or you want to wander around on your own first, you can always register with an alias name and information.
While no two transactions will ever be the same, here is a good guideline of what to expect when buying property through the developer.
First, arrange a time to go to the developer's site with your realtor. Even if you are not sure whether you want to purchase or not, the first time on site is most important as it outlines you are choosing to have your agent represent your interests.
If you choose a unit that day, an Agreement of Purchase and Sale will be drafted and signed by you and an authorized agent for the developer. Usually the developer requires a deposit in the form of a personal cheque made out to the developer’s lawyer in the amount of between $2,000 and $ 5,000. This cheque will not be cashed yet- it will be held onto for ten days.
It is at this time that your realtor will negotiate on your behalf to get you the best deal / extras / upgrades possible. However, sometime these negotiations are also made within the 10 day cooling off period (as some developer's will ask for lawyers to put everything in writing in an amendment).
From the day you sign the agreement, you will have a ’10 day cooling- off period’. This time is often referred to as the rescission period. For any reason, if you decide that you do not want to continue further, you are able to get out of the deal in the 10 day time frame. However, if you are interested in proceeding, there are quite a few things that need to get done in this time frame.
First, your realtor (or you if you prefer) needs to deliver the whole package to the lawyer for review. It is at this time your lawyer will review the package, and most importantly will request the developer to “cap” certain closing costs as well as levies. This is crucial- this is a step that can most likely save you thousands of dollars.
While the lawyer is reviewing and requesting the developer to amend the project, your mortgage broker will need to provide you with a letter stating that the lender will grant you a mortgage.
As you get closer to the 10th day, you will most likely need to come up with a further deposit. In the majority of cases, many developer’s require a 5% deposit (of the purchase price) between the 10th and 30th day. This deposit will need to be made out to the developer’s lawyer, which will be held in trust.
With many pre-construction projects the developer’s will often as for about 20% to be paid within the first year (ie- 5% paid in 30 days, 5% in 60 days, 5% in 180 days, and 5% in 365 days). Then, when the unit is ready for occupancy, the developer will often get 5% deposit on occupancy, with the remainder on closing.
Before registration, you will still need to close the deal with the developer. It is at this time that you will require to cover closing costs that are not required when doing a resale. For a more in depth break down of the developer costs, look for my next blog.
Have questions or feedback? Would love to hear from you.
