The pre-construction market is booming right now, with state-of-the-art buildings springing up all over Toronto. If you’re looking to test the waters with an investment property, or want to find a place to live, there are a few key terms you should know before you begin.
It’s the most obvious term you need to know, but it’s important you understand exactly what you are getting into before signing a contract for a pre-construction condo. Unlike your standard condo, as you might imagine, a pre-construction is a condominium building that has not yet been built. Developers offer units for sale, using blueprints, to help fund the early stages of construction.
Usually, you will see digital images of what the building, amenities and units are set to look like. You will also be given details regarding the location, floorplans and available square footage.
When you’re buying a home, the first step is securing a mortgage. And it's no different when buying pre-con. Your more likely to be accepted as a new condo owner if you have managed to secure a pre-approved mortgage.
The pre-approval will show both the maximum amount you can borrow, as well as the interest rate you will pay on the principle. This acts as security for the seller.
3. Down-payment plan
When buying a new property there are usually a number of conditions you must meet as part of the Agreement of Purchase and Sale. One of these things is a downpayment. The amount you have to pay upfront varies depending on the type of property you are buying, however, for most condos this tends to be a deposit of around 5% of the total price.
Usually, the initial portion of the down payment must be paid within the first 30 days of purchase, to secure the unit for you and assure you won’t abandon it further down the line. After you pay this preliminary lump sum, there are then various ways the remainder of the down payment is paid depending on the deal you strike up with the seller. Typically, the remainder will be paid over the next two years or so.
4. 10-day cooling off period
In Ontario, every purchaser of a new condo has 10 calendar days to think about their decision. It is during this 10-day period that the buyer should try and get their financing pre-approved, and have the condo agreement reviewed by their lawyer. If the buyer decides they no longer want to go ahead with the deal, regardless of the reason, they can back out of the contract and have their deposit returned in full.
If a buyer decides they no longer want to retain the contract or the unit, they can sell their stake in the property to someone else. This is form of sale is known as an assignment. While the original buyer isn’t selling the actual property (since they don’t own it yet), they are selling their commitment to purchasing a property.
The contract cannot be renegotiated, and the price and terms will remain the same, simply being sold to a new owner. Some builders do not allow assignments, while others will allow it for a fee. It’s vital you check with your condo-builder before assigning the property to a buyer.
6. Occupancy Period
The occupancy period is when the condo is built and can be moved in to, in which the buyer can take possession of the unit. During this time the buyer does not yet own the condo outright, but they pay the builder an amount roughly equal to their mortgage payment, condo fees and taxes to occupy it. The transfer of land has not yet occurred, and the mortgage has not been given. In a way, it’s like renting the home you’re buying before you actually own it.
7. Condo fees
No matter if you’re buying a unit in an existing condo building or you signing a contract for a pre-construction condo, you will be expected to pay condo fees - sometimes called resident fees. These fees are paid to fund maintenance and construction projects within the building, as well as to establish an emergency reserve in case of the need for serious repairs.
You can consider your condo fees as your contribution to the running of the building; the overall cost is shared amongst your fellow residents.
These condo fees tend to be mandatory for things such as repairs, staffing and cleaning of communal areas, however, not all condo buildings make residents pay for the “entertainment” amenities - things like gyms, party rooms and playrooms for younger residents. Instead, they will allow a condo-owner to decide if they want to contribute, depending on whether they intend on using such amenities.
8. Condo Reserve Fund
One way that condo fees differ a little for pre-construction is the condo reserve fund. When you buy a pre-construction unit you will be asked to contribute roughly two months worth of fees to the reserve fund.
This is the emergency fund in case anything unexpected pops up, and is usually requested at the time of closing.