Purchasing a Pre-Construction Condominium – What to Know
What to Know
Interested in entering the pre-construction condo market but not sure where to start? You are certainly not alone! The idea can seem a bit daunting at first. Hundreds of pages of legalese to go through. Uncertain construction timelines to deal with. An ever-changing market. There are many factors to consider before putting pen to paper. Here we break down some of the biggest ones to help make that decision just a little bit easier.
The Signing Process
If you are feeling a little bit intimidated by the prospects of signing on the dotted line no one would blame you. Depending on the nature of the project you may have to act very quickly to secure a spot, and you might be a bit worried that somewhere in that abundance of carefully constructed clauses are a few words that may come back to bite you. Thoughts like this are perfectly natural, and thankfully, there are some safeguards in place to help.
Every condominium project in the province of Ontario is subject to the rules of the government-legislated Condominium Act. One of the most important of those rules is the designated 10-day “cooling-off” period that every purchaser of a condominium unit is entitled to.
This 10-day period gives every purchaser a chance to review their contract with their lawyer with an eye out for any pitfalls. Some first-time pre-construction purchasers may be surprised to find that the purchase price of the unit does not make up the totality of the funds that will be needed for closing. Each pre-construction contract comes with an “adjustments” section where the builder may charge additional fees to cover some of their costs.
During the 10-day cooling-off window, you and your lawyer may request certain fees be capped at a maximum amount or deleted from the contract entirely. Additional negotiated terms may be the right to lease during the occupancy period or the right to do an assignment sale to a 3rd party prior to closing. If the builder is agreeable with any of the changes, amendments to the contract will be signed by both parties so that these negotiated terms officially become part of the deal.
It is important to remember that it is the builder’s final decision on what they will or will not agree to. But the 10-day cooling-off period allows you to cancel your agreement and receive any deposits already submitted back in the event that you do not like what you hear.
The Occupancy Period
After the 10-day cooling-off period has expired, if you have not decided to cancel your agreement in the time period allotted then your deal becomes firm. Congratulations! You have now officially committed to purchasing your pre-construction condo.
What happens next you might ask? The answer is mostly a lot of waiting as the condominium physically gets built. During this time, the builder should be providing updates on how construction is progressing, and advise on any delays within the timelines noted in your Tarion Warranty.
Eventually, the builder will advise you and your lawyer that your unit is ready for occupancy. This is one of the most exciting steps in the process as it means it is almost time to get your keys! Just before occupancy, depending on the nature of your contract, you and your lawyer may be asked amongst other things, to get insurance for your unit, provide a mortgage pre-approval, write out a set of post-dated cheques to pay for your monthly occupancy fees, pay your final deposit, and sign the builder’s interim closing documents, amongst other things.
Once all of the required documents and funds have been submitted to the builder’s law firm by your lawyer, your keys will be released for pick-up. You can now officially move into your new unit (or begin to lease the unit with the builder’s permission)! During the occupancy period, which usually lasts on average between 6-12 months, there may be some minor touch-ups that need to be done within your unit. This is very normal and the builder’s representatives will return to fix any issues you or your appointee noted during your pre-delivery inspection. It is also important to submit your list of issues to Tarion during the 30-day window at the beginning of your occupancy period to ensure proper coverage of any deficiencies noted.
The Final Closing
The occupancy period is an exciting time because it is the first chance to get your keys, but you might be wondering, wait, when do I pay off the rest of the purchase price and any adjustments? The answer is at the final closing stage.
During your occupancy period, the builder will often give hints that the final closing may be approaching. You may hear things like “the building is almost registered with the city”, and see things like the completion of the top floor and amenities. Your contract should often state how much notice the builder is required to give prior to assigning a final closing date. Typically, this is between 20-30 days.
Once you have received your final closing date, it is important to notify your lender immediately so that all of the mortgage paperwork may be signed and your lawyer can receive the mortgage instructions. Typically, the mortgage will cover 80% of the purchase price, which is also often the remaining balance left on the purchase price. It is also advisable to start shopping for a lender well in advance to avoid any last-minute complications or a rushed timeline.
Just before the final closing, you will meet once again with your lawyer to sign any final closing documents the builder requires, and also wire any money required from your personal funds for the closing (remember adjustments!). After that, your lawyer will take care of the registration and the transfer of funds on the final closing date. Once everything has been finalized, you are now officially the owner of a brand-new condo!
Purchasing a pre-construction condo may not be for everyone, and that is OK! But those who have entered the market will also tell you it can be very rewarding. Whether the goal is to use the property for investment purposes or have a brand-new unit customized just for you, there are many great opportunities pre-construction presents. With a little patience and the guidance of a great team, the property you desire may just be a few steps away.Read More