A newly built home; a clean oven, scuff-free floors, pristine countertops. Oh and that new home smell, it’s hard to resist! If you're a first time home buyer, wanting to downsize or have considered taking advantage of the new strata rules allowing for rentals then a presale condo or townhouse in the Fraser Valley might be right for you.
The process IS different and can be daunting. Let’s walk through everything to expect.
WHAT IS A PRESALE?
Purchasing a pre-sale is not the purchase of an existing physical property, but rather a contract for the right to receive, and an obligation to pay for, a finished unit at a point in the future.
The Pre-Approval Process
Getting pre-approved for a mortgage is standard for any purchase. Where it differs is the time between the approval and when you start making payments. It could be years, and interest rates and your financial situation could change. What happens if things DO change and how will this affect your mortgage qualifications?
You’ll need to know this from your lender. RBC offers firm approvals for clients purchasing presales with completion dates as distant as three years. This means that as the completion date draws near there is no need for updated employment/income, credit checks, etc. This may not be the case with all lenders, and the “what-ifs” need to be known. More info from RBC here.
The Payment Process
Developers set the amount required as a down payment, it’s not uncommon to see 5%. They may require more, and there may be a payment schedule set up to raise that amount over time to 10% or even 20%.
As stated above, you absolutely should get pre-approved for a mortgage before signing your contract even though you will not need your mortgage nor need to make payments on that mortgage until you take possession.
If you're an "I'll worry about it later" person, you're putting your down payment at risk and could be liable for damages to be paid to the developer.
Contracts for purchase from a developer differ from the norm. Usually as a buyer your realtor will draft an offer with conditions that benefit you; the buyer. In a presale, the contract for purchase is more often than not written by lawyers working for the developer and they favour their interests.
Best practise to really understand what is in the contract and get a realtor to negotiate on your behalf. What happens if the project gets delayed? Or doesn’t complete? Rare but a possibility, your contract will have information on the developers rights of termination.
The Assignment Rules
As you are purchasing something that you may not take possession of for years, you might think: "ok well, if life changes I can sell before that". When you are buying a presale, there will be language in the contract stating the rules around selling, or “assigning” your presale. Assignments may be prohibited, allowed only with developer approval and may come with penalties.
The Disclosure Statement
This is legally required for the developer to provide to buyers and it’s important to you. Understanding this statement is key to understanding what you are buying. This statement can be lengthy and complex; so what’s in it?
- Information about the developers background and experience
- How your deposit is handled
- Strata information and budgets
- Construction and warranties
- Where everything will be: parking, storage, the unit, the site and phasing map
- Entitlements and utilities
- Your legal right to rescind the contract in the 7 days after signing
- Permitted uses in the development
The Must Do
Once the developer has received an occupancy permit from the city, you will receive a notice of completion and date for you to attend the walkthrough. This is your first time to see your new home, and your time to check for any flaws.
Is the paint job complete? Do the appliances, faucets and showers all work? Do the doors and windows open and close smoothly? You need to come armed with a checklist and a few tools to document any deficiencies so you can to address them with the developer immediately.
TAXES, EXEMPTIONS & REBATES
Property Transfer Tax: For presale of $750,000 and under (and on a sliding scale for a partial exemption up to $800,000) for a home you plan on living in as your principal residence; you are exempt from paying the P.T.T. This can be a significant savings in closing costs as P.T.T is 1% on the first $200,000, and 2% on the remainder up to 2 million of the purchase price (and it goes up even more from there).
G.S.T.: 5% is due upon completion for all new homes in B.C. If your purchase is under $450,000 you may be eligible for a partial rebate.
NEW. You can’t say it enough, new is amazing. And a presale is a great investment if you know what you’re getting into. There is a reason the government enacted a 7 day rescission period for buyers; you must read and understand everything and oh it is a lot!
If you are selling a home to move into your presale, timing could get very tricky as changes to the building schedule can occur.
Get a Realtor. This is not an exhaustive list of all the ins and outs and a realtor is legally required to act in your best interest. Did we mention we are free when purchasing a property? We are paid a portion of the commission from the seller, so there is no cost to you. And one thing we do well is contracts.
If you have questions or comments, say hello and Grow with Us.
Steve & Selena
For a video of us discussing the new Strata Rules in BC click here.
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