Presale Buyer's Guide
What is a Presale?
A presale is a home purchased in advance, commonly 2-3 years in advance, before the building is completed and often before construction has even begun. A condo developer/builder sells the suites of the development in a presentation centre using a showhome or a display suite, floorplans, color schemes, use of materials and finishing and marketing/media publications to showcase the end product of your future home. You, the buyer, purchase the right to the future property.
Advantages of purchasing a Presale
There are many advantages and features in purchasing a presale.
- You can often secure the purchase of a presale for a mimimal and low hassle investment and should the property value increase before completion, you could see a significant return for the minimal money invested.
- Delay payments of strata fees, property taxes, interest on loans, and/or tenant issues.
- Receive protection of BC's 2-5-10 year new home warranty and low cost maintenance as building is new.
- End users will appreciate moving into a brand new home.
- Investors will appreciate the potential of higher rent and quicker tenants applications as a new home.
- Assignment potential to make a profit without completion of the property.
What is an Assignment?
A presale Assignment is when the original buyer sells and assigns their rights/agreement of the future property to another buyer before the condo is completed. The seller of an assignment is the Assignor and the buyer of an assignment is the Assignee. In most cases, the Assignee will pay a profit to the Assignor to purchase their orignial agreement from the developer. An assignment also requires the approval of the developer. Once the Assignment agreement is completed, the new buyer continues to fulfill the remaining obligations to the developer until completion and possession. Assignment agreements are complicated and should be consulted with the right agent, lawyer and/or accountant as there are many tax implications.
The process of purchasing a presale often begins with the visit of the presentation centre. The presentation centre features the showhome or display suite and information about the project. Once you have decided to purchase, you, the buyer will write a purchase agreement. This agreement has a 7 day condition among other terms and conditions. This condition allows you time to review the agreement, the disclosure statement provided by the developer, consult with your financial institute and or mortgage broker, discuss with your family, etc. to satisfy your certainty to purchase. Within the 7 day condition, if you do not conclude with the purchase, you may rescind the agreement and the home will become available to other potiential buyers. After the 7 day condition deadline, the agreement becomes firm and the home is yours! Congrats! From the date of your agreement until the completion of the building, the time between is merely a waiting period. Now let's talk about the money.
While conclusively you are responsible for paying the full purchase price, you do not have to take out a mortgage on the property immediately but are responsible for the deposit. This deposit usually ranges from 5% to 10% of the purchase price at the time you buy, with another 10% to 15% paid in installments over the course of construction. Every developer's structure for deposit installments may vary in percentage and due dates. As deposit installments are paid over a course of time, the developer usually provide some form of a reminder for deposit installment due dates mailed to you directly, registered mail, email, thur your agent, etc. The deposit is paid to the developer's lawyer/solicitor and held in a trust account. If the developer does not follow through with the construction project, the full deposit will be returned to the buyer.
Here are some EXAMPLES of a deposit installment structure:
1. Upon an agreement- 5% deposit required, 10% deposit 60 days after, final 10% deposit 180 days after.
2. Upon an agreement- 10% deposit required, 5% deposit 30 days after, 7% deposit 90 days after, final 3% deposit 180 days after.
3. Upon an agreement- 5% deposit required, 10% deposit 90 days after, final 5% deposit 120 days after.
Towards the near completion date, there are a few components to finalize. Get your finances in order and/or speak with your bank/ broker about obtaining a mortgage/appraisal. Choose a lawyer/notary to represent you in the transfer of the title and the funds. Conduct a walk thru of your suite to review the features of your home and the building, check for deficiencies (if any), compose a deficiency list for the developer to complete before you move in on possession.
Completion and Possession
Congrats! On Completion, the funds and title are completed and usually the day or two after, the developer will provide to you a welcome package and keys to your brand new home! Now, you can dance!
If you have any questions, please feel free to give me a call at 604-813-8211.