This month we’re discussing purchasing a “builder inventory home.”
What’s an inventory home exactly? And what are the risks and benefits? Keep on reading to find out if this is a type of purchase that may work for you.
Builder inventory homes are properties that are being sold by the developer after they have been completed. So, these are not “pre-construction” homes, not “re-sale” homes, but somewhere in between. Most often seen in condominium projects, builder inventory can result from a few different scenarios.
Types of Builder Inventory
Most often seen in condominium projects, it’s the units that the developer couldn’t sell during the pre-construction phase for whatever reason – perhaps that specific floor plan doesn’t present well on paper, maybe the view from the unit was not desirable, or it just wasn’t properly priced to reflect the market conditions at that point in time.
Sometimes developers purposely keep some of the units off the pre-construction price list in order to sell the homes at the future market value when built.
With condos specifically, it can take years from the time the project is launched to the date of completion, during which time property values have likely increased significantly. This is one of the reasons many investors purchase pre-built properties, but sometimes developers want to take advantage of the price increases themselves.
Occasionally the original buyers may be unable to complete their purchase and the developer is then forced to re-sell the unit. This type of inventory often stands out from regular builder inventory since it likely includes some sort of customization by the previous purchaser or features and finishes that vary from the standard builder-chosen colour selections.
Something we seen done by mostly bigger condo developers is when some of the units are kept as rental properties at first and then listed on the market when the tenants’ lease term is up. This is a strategy that may sometimes be used for financing reasons or simply because those units didn’t sell during the pre-construction process and the developer didn’t want to carry the monthly costs while keeping vacant inventory. An important thing to note with this type of purchase is that the Tarion Warranty is void as soon as a property is tenanted. It is sometimes possible to negotiate with the developer to include a builder warranty of some sort, in order to give you a peace of mind.
Occasionally this inventory may consist of units that were being utilized by the construction company as their on-site office, as a model suite, or sales centre and therefore was purposely kept for last to sell. In this scenario I would look for sign of wear and tear since these may be high-traffic properties, but more likely than not, the builder has taken the time to ensure everything is in order and ready to enjoy.
Pros and Cons
The obvious benefit to buying a builder-inventory home is that you’d be getting a brand-new property without the risk of not knowing what the end product will look like. The con to that, however, is that you’re paying the present market value, and not benefiting from the value appreciation you would have experienced if you took the risk during the pre-construction selling period.
In case of a condo purchase, buying a built unit could help shorten the period of time you would be paying interim occupancy fees, as you could likely negotiate a possession date that would be closer to the registration date. This could add up to savings of thousands of dollars!
Another benefit is that developers are usually pretty open to accepting a lower deposit amount since they don’t need to use your deposit funds in order to secure construction financing. This makes a big difference for first-time home buyers, who may be planning to only use a 5 per cent down payment – normally purchasing a brand-new home would be out of the question, since usually a 20 per cent deposit is required in pre-construction purchases.
As usual, my advice is to ask lots of questions and consult with a team of professionals before committing to a purchase.