Buying a pre-sale condo before it’s built: What you need to know
Pre-sale condos can be a great investment as prices are often much lower early on as developers work to generate construction capital. Buying a pre-sale condo also gives you more options when it comes to which floor, what view, and which layout you want to buy. Some condo developments will also offer special incentives, such as an appliance upgrade or other special amenities.
How it works
Typically a pre-sale purchase is made during the early stages of construction or before the ground has even been broken on a condo development. When you agree to purchase a pre-sale unit, you’re entering into a contract for the right to receive and pay for a completed condo in the future. Because this method comes with more risks (ie. what if the developers funding falls through and it doesn’t get built), it also comes with more rewards like those incentives and a lower price.
The advantages of buying a pre-sale condo
When you purchase a condo in the pre-sale phase, you typically only need to put down a small deposit, giving you additional time to save up for the next payment or the balance on completion. While most condo developers offer a handful of set interior design options, getting in early may give you the ability to customize your home’s interior or make changes to the floorplan.
The BC government requires new homes to register in the 2-5-10 Year Home Warranty Insurance program. This means that your condo and condo building may be covered by a warranty, saving you money on potentially costly repairs.
The risks of buying a condo before it’s built
Buying a pre-sale condo certainly isn’t for everyone. Construction delays and changes in financing structures can cause unexpected expenses and headaches.
If the real estate market should take a downturn before your building is completed, it may be worth less than what you agreed to pay for it. Mortgage lenders may only cover the new value of the property, leaving you to come up with the rest of the funds on your own.
In some cases, construction can be delayed by months or even years. In rarer circumstances, the condos don’t get built at all.
What you need to know about buying a pre-sale condo
The most important consideration when buying a condo before it’s built is the developer. Who are they, which developments have they built in the past and what’s their reputation? If you’re buying a condo unit from a well-established developer, there’s a good chance that they have any kinks ironed out and that they will deliver their condo development on time. If you can, try to inspect a building or unit that they’ve already completed. Pay attention to small finishing details which can be indicators of the overall construction quality.
Before you sign anything, be sure you’ve thoroughly examined all of the documents available, including the disclosure statement and floorplan
- Thoroughly examine the disclosure statement, which lays out what you will be buying, including common areas, storage, parking, appliances, and proposed bylaws.
- Talk to a mortgage broker and determine what you can afford and what you may be approved for.
- Take good care of your credit score. Now is not the time to take out a vehicle loan or rack up debt on your credit card.
- Don’t forget to factor in a rise in mortgage rates when you’re calculating possible payments.
- Your developer has to include estimated start and end dates for construction.
- Once you’ve signed on the dotted line, the developer is legally obligated to inform you of amendments to estimated dates, so you should always know what the status is.
- Hire a great, licensed REALTOR and lawyer to help you review the Disclosure Statement and explain the terms and fine print.
- You’ll also want to review the pre-sale contract with your REALTOR and lawyer to make sure that everything looks right and that your needs are represented too.
There are lots of new Kelowna condo developments going up over the coming years so now is a great time to consider buying a pre-sale unit. Work with an experienced real estate agent, mortgage broker and lawyer to ensure you’re prepared when it comes time to sign your pre-sale agreement. For more information on condo developments in Kelowna, contact the team at Kelowna Condos Real Estate Co