As a first-time home buyer, the process, steps, and information involved in buying a pre-sale home will be unfamiliar. A buyer’s agent will help you understand the process and make the best possible decision. Before starting to look for a realtor, however, it’s important to understand the fundamentals of purchasing a pre-sale home.
What is a pre-sale home?
Pre-sale homes are homes that are available for purchase before the units are actually built (or finished) by a developer. When buying a pre-sale home, you’re basically putting a deposit down to own the rights to your future home. Though there are usually payment schedules, you will pay as the home progresses, but you won’t be asked to pay the full price of the home until it’s completed.
The benefits of purchasing a pre-sale home
There are many benefits associated with purchasing a pre-sale home, including the fact that the full payment isn’t due until the home is complete. This allows buyers more time to save as the home is being built and lower the amount of the mortgage.
Another benefit is that the value of the home may increase as it’s being built. This means that once your home is complete and you’ve secured a mortgage, it will be worth more than you paid for it. That’s why pre-sale homes are so sought after by prospective homeowners and investors.
Other benefits include:
- New homes have mandatory warranties for your peace of mind.
- You may have the opportunity to customize the layout or colour scheme since you are involved from the beginning.
- You get to live in a brand new home.
First-time home buyer incentives
There are a few important benefits to being a first-time home buyer in BC that can help you lower the cost of purchasing your new home.
- Eliminate or reduce the amount of property transfer tax you pay.
- Withdraw tax-exempt funds from an RRSP to buy a new home with the Home Buyer’s Plan.
- The First-Time Home Buyers Credit helps offset legal fees and other closing costs.
Though each of these can be valuable to a first-time home buyer, there are strict criteria that must be met in each case. Your realtor can help you understand if and what first-time home buyers incentives you qualify for.
Deposits and deposit schedules
The first step in purchasing pre-sale is to pay the deposit on the home. Usually, when you put your offer in, there’s a small deposit due ($1,000, for example) which is followed by a deposit that’s 5-10% of the agreed total price after the 7-day cooling-off period is complete. After that, you will be scheduled to pay a certain percentage at two agreed-upon times as the home progresses toward completion.
It’s important to note that each deposit amount and schedule in the pre-sale contract are different. It depends on various factors, including the developer, market conditions, and how long the home is expected to take to complete. It’s also important to know that your realtor can negotiate more favourable terms for your deposit and payment schedule.
Risks
There are risks to any home purchase but there are special risks to consider when it comes to pre-sale homes. Here are the most important risks to consider:
- Pre-sale homes often take longer to complete than anticipated. Even if the developer has a date in the contract, that date can be somewhat of a moving target. Anything outside of their control—and that’s a very long list—can cause delays that are not in breach of the contract.
- Developers usually reserve the right to make any changes to floorplans or finishings without notifying the buyer if it’s necessary to meet building codes.
- The value of your new home may not have gone up during the time it took to complete. This is a risk of any investment over time, however, as you can never guarantee an increase in value.
Just like any resale real estate purchase, there are risks associated with pre-sales, but a great realtor can help you navigate the process and use their wealth of market data, analysis, and experience to ensure that you make the best possible investment decision.
As with any real estate purchase, there is a great realtor who can help you navigate these risks and make the best possible decision with market data, analysis and experience.
Rescission or cooling-off period
The rescission or cooling-off period is a 7-day opportunity, starting from the time your offer is accepted, for the buyer to change their mind and pull out of the contract for any reason. This gives you time to reflect on your decision and ensure you’ve made a purchase that you’re confident in.
It’s important to know that the 7-day rescission period ends automatically. If you do not notify the developer that you are pulling out of the contract, then the contract automatically goes through. There is no further acceptance required. So it’s vital that you take the time to reflect, and then reach out to your realtor if you have a change of heart.
Developers
The developer is the company building the home and putting it up for pre-sale. Developers are motivated to do pre-sales because it allows them to reduce their financing costs, understand the market value of the homes they are developing, and protect themselves from a downturn in the real estate market. It is extremely beneficial for you, the buyer, to have someone in your corner who is also experienced and knowledgeable and acting in your best interest — that’s exactly the role of your realtor, or advisor.
Realtors or advisors
When making an important life decision like this, you want to be as well-informed and confident as possible. That’s where your advisor comes in. A good advisor for a first-time home buyer looking at pre-sale homes is an advisor experienced with both first-time home buyers and pre-sales. That way, you can be sure your advisor understands the incentives available to you as a first-time home buyer and the emotions you’re going through as you navigate your first home purchase. Further, you can have confidence that your advisor knows the pre-sale market and is comfortable negotiating with developers.
What can an advisor help negotiate?
An experienced and knowledgeable advisor can certainly help you negotiate the final price of your new home, but with a pre-sale, there is much more to it. Your advisor can also negotiate the terms of your deposit and payment schedule along with the amenities and layout of your new home.
Working with an advisor as a home buyer is free
When you are the buyer, your advisor represents you and your interests but isn’t paid by you. The developer is responsible for paying the advisor's commission when the final sale is complete, meaning you get access to their experience and knowledge at no cost to you.
Find a rennie advisor
If you’re thinking of buying a pre-sale home and looking for a realtor who can help you achieve your goals, check out our rennie advisors, and please don’t hesitate to reach out to any of them with any questions.
Learn more about whether a pre-sale home is right for you in The Pros and Cons of Buying Pre-sale Homes.
