Are you considering purchasing a PRESALE property but unsure if it’s the right choice for you?
Here is a quick breakdown of the ways in which presale transactions typically differ from resale:
1. Home Selection
In the preconstruction phase of any new build, the developer will open a sales centre that will give potential buyers the opportunity to come in and view all the various floor plans and see the interior finishes and renderings/models of the final product. This allows the potential buyer to view all their options and determine the most suitable option.
2. Mortgage Delay
A mortgage is only necessary after the completion date of the development. However, prior to completion, the developer will likely require multiple deposits which the buyer has a contractual obligation to fulfill at the set dates written out in the contract.
3. Equity Build-Up
While the building is under construction, its value will rise and fall alongside the market. In the current market, with prices trending upwards, those who have purchased a presale have the opportunity to gain appreciation on the value of their purchase before they take possession.
4. Reduced Competition
As long as you get into the sales centre soon after the developer opens it, you will most often have the opportunity to reserve the floor plan you like and take it into rescission without much competition. With multiple units up for sale at once, this reduces the chances of a bidding war.
What is the rescission period?
It is a period of typically 7 days after the vendor signs the Contract of Purchase and Sale in which the buyer is able to perform their due diligence by reviewing their finances and the Property Disclosure documents.
At this point, if the buyer does not want to go through with the purchase, they are able to back out without any penalty or repercussions.
This is arguably the biggest advantage of presale and a great security blanket for buyers.
Other things to note:
Typically, 5-10% at contract writing with incremental payments thereafter.
- 2 years on labour and materials
- 5 years on building envelope
- 10 years on building structure
Property Transfer Tax (PTT)
- Presale homes under $750,000 are exempt
- Presale homes under $800,000 are partially exempt
- Otherwise, the buyer will have to allot the costs of PTT, which is 2% on the first $200,000 of the purchase price and 1% on the remainder of the purchase price, up to $2,000,000.
Things to ask your REALTOR®
- Will 5% GST always be added on top of the purchase price?
- Is there a guarantee of appreciation during construction?
- What are my assignment options?
- What are my options for financing?
- What are the possible incentives I’m eligible for?
REMEMBER, it is important to have a REALTOR® and Mortgage Broker assist you and look out for your best interests.