Here is a brief overview of some of the more common questions relating to presales.
Why Hire A Realtor® For A Presale?
Written By: Elliot Funt with Engel & Völkers Vancouver
There is a vast amount of information to go through and choices to be made when it comes to purchasing a presale. As an experienced Realtor®, with a large number of presales sold over the years, I’m here to guide you into the right investment and one that you fully understand.
Selection:
Often buyers find it is hard to visualize what suite will work best for their needs. Having an experienced real estate agent guide you through the process of selecting the right suite is an important part of being satisfied with your purchase.
Conditions:
Developer contracts have many conditions which benefit the developer. All agents that work at any presentation centre work on the developer's behalf, not your behalf. By hiring me, I can go through all of the details with you and make sure that you are protected and know what you are signing - as an outside agent, I will be working in your interests.
Also, one important aspect of presales is the developer's Disclosure Statement. As a buyer, you have 7 days to review this Disclosure Statement once signing the deal and can void the contract for any reason within this period. It is important to get a real estate agent to look over the Disclosure Statement, so you know what you have signed.
Navigating Through Overpriced Options:
Finding a good deal when it comes to presales can often be tricky. There are certainly some good presale options out there, though frankly, many of them are overpriced. All presales are far from created equal – picking the right presale choice is the difference from making a good return on your investment, and losing money.
Risks:
There are two significant risks that come with presales.
1) Less increase in the market than anticipated over the building period, leading to lower or negative return on your investment.
2) The developer going bankrupt during construction.
Both of these risks are real risks, though both can be greatly mitigated through proper research into market trends, and research into the developer and other stakeholders involved in the sale. I’m here to help you all steps of the way.
Construction Updates:
During the holding period for your presale purchase, you will inevitably have questions. I’m here to keep you updated on the construction timeline through periodic check ins with the developer’s marketing team.
Do I have to Pay a Commission?
The developer pays the commission, and the price you receive is unaffected and potentially lower than what you would otherwise pay. Part of all real estate contracts in BC states the amount of commission paid by the seller. No commission gets paid if the transaction does not complete.
Is A Downpayment Required?
Typically between 5-20% is the standard downpayment for presales, though every presale contract tends to be a little different. Often a low downpayment is used as an incentive for buyers. This initial downpayment is part of the purchase price.
Why Buy A Presale Condo?
There are many benefits of the purchase of a presale condo. There is the obvious benefit of having something new and shiny, but aside from this benefit, there are a handful of other benefits as well.
Ideal Option For Many Investors:
There are several reasons for this, though primarily the amount you put down to the potential return is often quite high. Just like all other real estate, presales face the same ups and downs of the housing market as any other real estate investment. Though, there is one significant difference between a presale and an already built condo – no major costs involved during the holding period. A presale holding has no maintenance fees, mortgage payments, and no property taxes during construction (some exceptions around houses built on spec). You also do not need to worry about your renters or pay any vacancy taxes during construction.
You are putting down the downpayment and profiting from any rise in the housing market. The market nearly always goes up over the long term. For instance, on a $500,000 presale, you would need to put down roughly $100,000 - assuming the market goes up in the 3-5 years during construction - you are buying a condo in the future for the prices today. Your investment does not have the worry of continuing maintenance fees or mortgage payments.
Customizability:
Another benefit is the ability to customize your condo. There are usually choices of colour schemes, and typically there are also options for upgraded appliances. Nearly all presales also have a wide selection of layouts to fit your needs perfectly.
Warranty and No/Few Repairs:
New buildings come with warranties from the developer. These are typically 2-5-10 year warranties depending on what is in the building. Unlike many old buildings that often have a variety of costs for repairs.
Great For Future Rentals:
If you plan to rent the suite in the future, know your renters are happy to pay a premium on the new shiny condo you plan to rent out. Suites are typically easier to rent out, and it's usually less hassle to find reliable renters.
Is A Mortgage Required?
No, a mortgage is not mandatory. Typically a buyer will get a mortgage for the remaining portion of the price (80-85% of the purchase price), and interest will only start on the mortgage when the lump sum completion payment gets paid at the time the presale completes. There is a particularly good program from RBC that allows you to be approved for future financing at the time you purchase.
have Any Other Questions? - Contact Elliot
Entirely written by Elliot Funt. Originally published in 2018, with updates and improvements for relevancy about once a year.