There is a lot more uncertainty involved in buying a pre-construction condo than there is when you’re buying a resale unit. Sometimes, the building site hasn’t even broken ground and floorplans have yet to be revealed.
What if, after you’ve started paying the developer for your reserved unit, the project gets cancelled? What if the developer completely abandons ship?
It’s quite a battle to recover funds from a bankrupt developer, which is why choosing a builder with a reputation of completed projects is essential. Doing your due diligence is paramount in protecting your hard-earned money in the pre-construction sphere.
Condo failures are rare, but they do happen
According to Zoocasa, 23 condo projects have gone belly up over the last six years in the Greater Toronto Area. Most cancellations are due to “zoning issues or rising construction costs that cut into projects’ planned profitability,” says Urbanation.
Look into the developer
Because you’re buying into something that doesn’t exist yet, you must look over the developer’s previous track record, who their partners are, and where they’ve completed projects elsewhere in the country or world.
Have they previously completed projects on time? Did they meet the budget they initially declared? Is it perhaps their first project?
There are online databases, such as one from Tarion Warranty Corporation, that lets users investigate many builders’ past projects, details about costs and other relevant information.
How to protect yourself
Whenever you buy a new condo unit or home from a developer in Ontario, a portion of your deposit is automatically protected by the Tarion New Home Warranty Program.
With this protection, your new residential condo deposit purchase is covered for up to $20,000; new house purchase deposits are covered for up to $40,000. Deposits higher than those amounts won’t be protected, unfortunately.
The Tarion warranty won’t go on to cover any reservation payments you make on a unit prior to signing a purchase agreement. Always get receipts for these reservation fees, if they are required.
Involving a real estate lawyer in the pre-construction process will help you fully understand vague legal details, while the 10-day cooling off period allows you to look into the developer’s track record and walk away from the purchase if so desired.