10 Things To Know Before Purchasing A Presale

Presales, simply put, are when a developer sells the units of a development prior to the completion of construction. Often times this takes place before construction has even begun. Buyers of presales purchase the right to the future property upon completion of construction.

Presale buyers, while ultimately responsible for paying the entirety of the purchase price, are only responsible for a deposit not a mortgage. Deposits range from 5-10% of the total purchase price at the time of purchase, with another 10-15% installments paid over the course of construction. The deposit is held in a trust account until construction is completed and is not made accessible to the developer until that time. The deposit is returned to the buyer in full if the developer does not follow through with the construction project.

In the past few blogs, we highlighted the projected growth in Surrey, BC – specifically in Central Surrey. There are several developments that have already sold out and are under construction and many more that are in registration phase, almost ready to begin the presale process. These units are proving to be valuable for anyone looking to purchase their first property to experienced real estate investors. In this blog, we will outline ten things to think about when purchasing a presale development.

1. It is critical to keep in mind that all presale condos are subject to 5% in addition to the purchase price. 5% can be a quite significant cost. While there are rebates available for first time home buyers, you will need to ensure your eligibility. Review your contract thoroughly to determine all of the costs involved in the presale, even when the deposit may be the only real requirement.

2. There is absolutely no guarantee of receiving financing. Although you may be pre-approved for financing for your property, this may be subject to change. For example, if you face a financial hurdle, such as losing your job before closing, you will still be required to close.

3. Project timelines may change. Deadlines are always in flux, and often times the schedules of a project’s development skew from the initial outlook. It is rare to see a project finish on time, let alone a few months late. Plan for a delay.

4. Know your restrictions before thinking about assigning a contract. In some cases, developers may not allow the assignment of your contract until the entire project’s units have been sold. They may also charge a fee for assignments, or any profit on assignment may go directly to the developer. As often the case, most assignment will not be allowed to be advertised on MLS.

5. Market corrections do not change your closing price. No matter the condition of the market, your presale purchase price must be honored. However, Surrey central is expected to grow in value and demand, so locking in a presale price may be a benefit.

6. The size of your unit may change before completion. Your finished unit may end up being smaller than initially agreed upon. Developers are obligated to be as accurate as possible but are allowed up to 97% accuracy in building. For example, your 600 square foot purchase may end up being only 582 square feet. This accuracy includes the floor location of recreational facilities.

7. You will receive Home Warranty protection. All presale homes come with a 2/5/10 year warranty which allow for minimal cost for new owners once they move in. The likelihood of faults in new homes is lower than with old buildings.

8. The 7 Day Rescission Period. This is a 7-day period from an accepted contract to allow the purchaser to do their due diligence and read the disclosure statement to ensure that this is the best purchase for the committed purchasing party. This is legally required by the Real Estate Marketing act. After this 7-day period is complete, the contract becomes binding.

9. You may be able to secure additional storage and parking during the presale phase. Project developers do often sell additional storage and parking spots during presale. Be sure to know how many cars you will have and how many spots you will need early on. As units begin to sell out this will become more of an issue.

10. Understand your building’s payment structure. Most new developments have a different payment structure than normal property purchases. As an example, the developer usually asks for 1% of the purchase price upon signing of the contract. An additional 9% is charged to you after the 7-day rescission period, and an additional 5-10% is needed a few months later.

Having representation and a realtor to assist you through this process will provide peace of mind as realtors can negotiate certain things you may not even be aware exist. For example, you could negotiate certain finishing’s to your preference as the units are yet to be built. Contact us for further information.