THE PRESALE PROCESS
Purchasing a presale property can provide immense benefits. Here are some tips if you are looking to purchase a presale to ensure you are getting what you pay for, and more. Know your legal rights and do your research, and conduct through due diligence, so you can make an informed decision!
When you agree to the purchase of a presale unit, you are officially entering a contract for the obligation to pay for, and receive, a finished condo or townhouse unit at a set date in the future. Since you are in fact purchasing an unfinished product, there are inherent risks.
Are there advantages to buying presale unit? Of course. You essentially pay a small deposit today and pay the remainder of the deposit when you move in. During construction, you are given time to sufficiently save enough money to pay this remainder. You also have the ability to pay your deposit in small increments throughout the building process.
Since you are buying a presale unit, you may also be able to customize design elements, your unit layout and finishes. Worried about home repairs and major maintenance? Don’t be. Buying a brand new home means you will not have to worry about these things for at least 10 years. This is due to the fact that your unit will be covered under the BC Government’s 2/5/10 Home Warranty Insurance Program.
Not everything is worry-free when it comes to purchasing presale units. You should conduct thorough due diligence and research before signing off on a purchase contract and paying your deposit. You should exercise your rights and responsibilities under the Real Estate Development Marketing Act, otherwise known as REDMA.
While there are advantages to purchasing a presale unit in any real estate market, the best opportunities occur when there is a hot real estate market. In short, by the time construction is complete and the unit becomes move-in ready, this unit will already be worth more than your agreed purchase price. However, if you purchase in a declining market, you may have already lost money. Contrary to popular belief, if you are relying on a mortgage to pay for your home, some mortgage lenders may only cover the unit’s market value at completion. This can be dire for some buyers and their families, as it leaves you rushing to raise more money to pay the difference.
The banking industry is not always as calm as it seems and the mortgage lending climate may change without warning. If the government administers tightened mortgage rules, buyers may find themselves no longer qualified for their past pre-approved amount by the time of purchase completion. For one moment, let us assume that you do not have the cash required to complete the sale, or your unit is worth less than what you owe when it is time for you to pay. It is critical to understand that you would still be legally obligated to complete the sale or lose your deposit. The only reason you would be able to keep your deposit, or not be obligated to complete the sale, is if the project developer violates the terms of your purchase agreement. In addition to the worries of real estate marketing changes, construction delays may occur that could result in the project not being built at all.
How to Mitigate Potential Risks
Before signing anything, thoroughly research the builder of the development you are interested in. Ensure that the builder has both a reputation for timely construction and quality builds. If you feel unsure, look for a second opinion from either your real estate agent or previous homeowners who have purchased from them in the past. If you are a first-time buyer with a smaller down payment, it is highly recommended that you focus your attention on presale units that are already near completion to eliminate some of the unknowns.
It is also recommended that you speak with an independent mortgage broker, not just to see what you can afford, but to also ensure that your credit is in strong enough standing before attempting to purchase. Financial preparedness is essential.
Every purchaser has the right to review the Disclosure Statement prepared by the developer before signing a purchase contract (according to Section 21.2 of REDMA).
The Disclosure statement is one of the most critical pieces of documentation for presale purchasers. It clearly lays out everything included in your purchase, from proposed and filed bylaws, storage allocations, common property, finishes, furnishing and a description of appliances. It must include an estimate of the start and end date of construction, as well as any material facts that could “reasonably be expected to affect the value, price, or use of the development unit or development property.” It is the developer’s obligation to keep you up-to-date on any amendments to estimated dates and any material facts. Since the building of a new development is a long and complicated process, it is extremely important.
It is highly recommended that you meet with an experienced residential real estate lawyer, as well as your own real estate agent, to review the Disclosure Statement in all its details. Upon the completion of Disclosure Statement review, you conduct your due diligence regarding the presale purchase contract. The key is to check the small print before signing anything.
Unique rewards are made available through the purchase of presale units; however, the process may be far from simple. It is truly a wise move on your part to enlist the services of an experienced Realtor, lawyer and mortgage broker. The legislation of REDMA is constantly being shaped through a number of ongoing court cases and leaves great room for interpretation. Having experts on your side will help ensure your safety throughout the process of purchasing your new custom home.
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The New Surrey provides superior Presale Representation for Buyers. Contact our team to get exclusive opportunities along with market analytics.
*Note: This blog post is not intended to breach any existing agency agreements.
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