When it comes to any big financial decision buyers interested in pre-construction have many valid concerns and questions, but there are also a lot of preconceived notions about pre-construction purchases that hold consumers back from this type of investment. While buying new is certainly not for everyone, below I’m going to break down some of the most common myths about pre-construction and perhaps alleviate some of your concerns.
You don’t really know what you’re going to get
This is only true if you buy blind, without doing proper research on the developer and their past projects. In some cases the developer may use a different construction company to actually build their projects so that’s a big question to ask before signing on the dotted line. I always take my clients to visit previous projects done by that developer and builder in order to get a better understanding of quality.
You can also visit the showrooms of the kitchen and bathroom providers that will be hired for the project you’re considering investing in. This should give you a better idea of the finishes you’d be purchasing.
If construction has already begun, don’t hesitate to ask for a tour of the site or even better the actual property you’re considering. Sometimes, if you’re persuasive enough the sales staff will go the extra mile and arrange a visit (with all of the super cute protective gear in hand, get ready for helmet-hair!).
You need a big deposit
This really depends on which stage in the process you get involved in. If the developer is still waiting to reach a certain percentage of units sold in order to obtain construction financing (typically around 60 per cent), then yes – usually a 20 per cent deposit is required. However, if you’re purchasing later on in the process then you can negotiate a lower deposit! I’ve seen companies agree to as low as 5 per cent, given of course that the market conditions are on the buyer’s side.
Keep in mind that even if a 20 per cent deposit is required, it’s typically broken down into four payments, staggered over a long period of time, with the last payment due on the occupancy date which could be years away. This could very well give you the time to save up or liquidate other assets.
You will lose your deposit if the developer goes bankrupt or cancels the project
All deposits must be held in trust, in most cases by the solicitor of the developer. In the event that the project is cancelled (which we have seen happen recently with rising construction costs) you are entitled to receive your full deposit back within 10 days following the termination of the agreement.
In the worst case scenario of the developer refusing to return your deposit or going bankrupt, there is some protection offered by Tarion in Ontario- $20,000 in condo purchases and up to $100,000 in freehold purchases. Other provinces in Canada have their own warranty programs.
Developers only care about profits
While this may be true for some developers, I’ve worked with many who actually care about the final product and their clients’ buying experience.
Yes, ultimately turning a profit is the main goal and the reason why they are embarking on the multi-year project. However, keeping a clean reputation is very important to most developers. I’ve seen companies go above and beyond their basic duties to ensure that their purchasers are completely satisfied with the final product and they overall journey.
Again, this comes down to doing your own due-diligence at every step of the process, especially before you firm up the sales contract and move forward with your investment. Research, ask for references, and don’t be shy to ask many questions.