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What is a Pre-Construction Condo & How to Buy One in Toronto

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Jillian Castillo
Jillian Castillo
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The appeal of pre-construction condos in Toronto is rising, particularly among investors and first-time homebuyers. Understanding the intricacies of contracts, legalities, and financial obligations associated with such a purchase is essential. This specialized segment of the real estate market has its own rules, opportunities, and pitfalls. 

The Basics of Pre-Construction Condos

Pre-construction condos are residential units that have yet to be built. You are essentially buying a property based on plans and prototypes. Toronto has seen an uptick in the construction of these types of condos, making them an option worth considering.

Down Payment Differences

One of the primary considerations when purchasing a pre-construction condo in Toronto is the down payment. Contrary to resale condos where you may have some flexibility, pre-construction condos usually require a down payment of at least 20% of the purchase price. This down payment isn’t a one-time transaction; instead, it’s divided into small payments following an established timetable.

Cooling-off Period

After your initial deposit, a cooling-off period comes into play. For Ontario residents, this period lasts for 10 days. This time allows you to reassess your finances and consult a real estate lawyer to inspect the purchase agreement for any inconsistencies or potential issues.

Closing Costs

When budgeting for a pre-construction condo, consider the unique expenses you’ll encounter. These include not just common expenses such as legal fees and home inspection charges but also utility hookup fees, development levies, new home warranty plan fees, and more. Additionally, pre-construction condos in Toronto are subject to a 13% harmonized sales tax (HST), but you might be eligible for an HST rebate if the condo will be your main residence.

Occupancy Fees in Ontario

Unique to Ontario, you’ll face occupancy fees when you move into the condo before construction is entirely finished. These fees cover the builder’s costs for the incomplete period. Any interest accrued from these fees is later returned to you. It should be noted that most amenities are not accessible during this time, and construction-related disturbances are to be expected.

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Importance of the Developer’s Reputation

When choosing a pre-construction condo, you must also factor in the reputation of the developer or builder behind the project. A reliable developer reduces the risk of delays or project cancellations, which in turn secures your investment. Consulting with an informed realtor familiar with pre-construction properties can help steer you in the right direction.

Visiting Model Units and Construction Sites

Inspecting model units and construction sites can provide valuable insights into the final product. You can get a better understanding of possible upgrades or additional features that could enhance your living space. Be cautious when considering upgrades; they could significantly impact the final cost.

The Nine Steps to Buying a Pre-Construction Condo

Getting Mortgage Pre-Approval

Before even considering a list of new homes Toronto to buy, your first course of action should be to secure mortgage pre-approval. This step not only informs you of the maximum amount a lender is willing to offer, but it also places you in a stronger negotiating position with sellers. Lenders look at various aspects like credit score, income, and debt to grant a pre-approval. Being pre-approved keeps you realistic about which properties are within your financial reach.

Determining Your Budget and Ideal Location

After securing mortgage pre-approval, the next phase involves setting a budget and identifying a preferred location. These two factors often go hand in hand, as the location can significantly impact the cost of a condo. Research different neighborhoods in Toronto to understand their pros and cons. You’ll want to consider proximity to work, public transportation, and amenities like schools and hospitals. Have a list of non-negotiables and desirables to make a balanced decision that aligns with your lifestyle.

Consulting a Specialized Realtor

Once your budget and preferred location are set, the subsequent step entails finding a realtor well-versed in pre-construction condos. Their expertise can be invaluable in navigating the intricacies of contracts and negotiating favorable terms. A skilled realtor can provide recommendations based on your criteria and help filter out unsuitable options. They can also assist in the due diligence process by advising on the reputability of developers and their track records in delivering projects on time.

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Shopping for Suitable Units

With mortgage pre-approval, budget, location, and a realtor in place, you can now turn your attention to the actual properties. Your realtor will likely offer a curated list of options based on your preferences. However, don’t rely solely on this list; take the initiative to explore model units and visit construction sites. These visits can offer insight into the quality of materials being used, the layout, and how your potential home would look once completed. Moreover, it helps you gauge any potential for upgrades or additional features you might want, though remember that these can significantly affect the total price.

Making an Offer

After identifying a suitable pre-construction unit that aligns with your budget and requirements, the next step involves making an offer. Unlike resale condos, the price for a pre-construction unit is often set by the developer, leaving little room for negotiation. However, some leeway might exist in the form of incentives like free parking spaces or discounted upgrades. Your realtor can guide you through the specifics of what can and can’t be negotiated.

Signing the Purchase Agreement

If the offer is accepted, the next step involves signing a purchase agreement. This is a legally binding contract between you and the developer, outlining the terms and conditions of the sale. It’s essential to have a real estate lawyer review this document to ensure that it doesn’t contain any unfavorable clauses or loopholes that could disadvantage you later. This agreement will outline the down payment schedule, the cooling-off period, and other important clauses specific to the property.

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Using the Cooling-Off Period to Secure Financing and Make an Initial Deposit

Once the purchase agreement is signed, the cooling-off period begins. In Ontario, this period lasts 10 days and is your opportunity to finalize your mortgage agreement with the bank and make the initial deposit as outlined in the purchase agreement. During these 10 days, you should consult a real estate lawyer to verify the terms and conditions listed in the agreement. If anything is amiss, this is the period during which you can withdraw your offer without any penalties.

Making Subsequent Payments According to the Established Schedule

Upon the conclusion of the cooling-off period, your initial deposit becomes non-refundable, and you move to the next phase of making subsequent payments. These payments are broken down into installments, as outlined in the purchase agreement. Failing to adhere to this schedule can result in penalties or, in extreme cases, the annulment of the sale.

Taking Assignment of the Property Once Construction is Complete

The final stage of this journey occurs when the building is complete, and you can take assignment of your property. This means you become the official owner and can move into the unit. Keep in mind that this is the point at which you’ll pay the remainder of the purchase price along with any closing costs that were not covered in your initial payments.

Conclusion

Understanding the unique aspects of buying a pre-construction condo in Toronto can make all the difference. Between legal obligations and financial commitments, informed decisions are required. Toronto offers a diverse real estate market, making pre-construction condos an investment worth considering for many.

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