Purchasing Process for Pre-construction Condo Projects in Greater Toronto Area
Friday Aug 19th, 2022
Preconstruction projects are very popular among buyers for various reasons.
In Toronto, preconstruction projects have become very popular among buyers for several reasons.
One reason is that the number of buyer applicants has far exceeded the number of available units.
Another reason is that developers tend to prefer to work with buyers rather than non-buyer clients. As a result, most preconstruction projects are allocated to buyer clients.
However, the standard process is for the buyers to first register to apply and then developers select or allocate the units to the buyer client who starts the purchasing process.
Developers Release Marketing Information
Developers usually do not promote the project directly to buyers. Instead, they send out marketing information to registered buyers via registered agents. These can be electronic brochures, videos, photos, etc to introduce the new development. Registered brokers then share this information with their prospective buyers.
Submit Application Form
Only the buyers who are interested in the project will submit the application forms, to indicate the interested unit. Once all applications are received, developers will choose or allocate the units based on the preferences expressed in the application worksheets and invite the selected buyers to sign an agreement to purchase.
In order to increase the odds of getting allocated, perspective buyers can do these:
1. Submit the application early
2. Attached a $5000 to $10,000 cheque as a way to show good faith. If at the end the buyer did not get the desired unit or chose not to purchase, the buyer can get the cheque back.
3. Try to be more flexible and select more units. The more flexible the buyers, the more likely the purchase will be made.
Signing the Purchase Agreement and Paying Deposit
These buyers will be notified and invited to the venue to sign the agreement. But since COVID-19, many of this signing is done electronically via DocuSign, and then the assigning buyers will also need to pay or deliver the post-dated cheques as deposits. The use of post-dated cheques is for the terms in which a small percentage will need to be due by a certain time as agreed. If this project is sold to overseas buyers, then these overseas buyers can use wire transfers to pay the deposit.
Normally at the signing buyers will be required to deliver the post-dated cheques. Many buyers today do not use cheques anymore in their daily life. So make sure you order a check book from your financial institution before purchasing a pre-construction property.
10-Day Cooling Period
After both parties signed the contract is said to be executed. This executed contract will be sent back to the buyer, and starting from the day the buyer received the contract, he or she will have 10 days as a cooling period. During the cooling period, buyers can find a lawyer to represent them to review this contract to see if it is satisfactory or fair to the buyers. During this review, the lawyers may find and point out all the points that the buyers should understand and be made aware of, and send a request for the developers to meet if some terms and conditions were deemed unfair. If the developers agreed with the amendment, they will come back with a new agreement and both parties can sign.
If amendments are not accepted, the buyers can still go ahead with the purchase, or indicate that they no longer want to proceed with the purchase within the 10-day cooling period without penalty.
After the 10-day cooling period, this contract becomes firm and legally binding.
Deposit Payment Schedule
Here is a condo example that illustrates the deposit payment schedule.
Like most developers, this one requests 20% as total deposit for local buyers. The schedule of payment for local buyers is: 5% at the time of signing, 5% in 120 days, 5% in 210 days, 5% in 400 days. So in 400 days, the buyer is expected to get 20% total. 5% Interim Occupancy only needs to be paid a few months before the building finishes, which may be 3-4 years away.
For overseas buyers, most developers require 35% deposit: 10% at signing, 10% in 120 days, and 15 in 400 days.
The remaining amount, which most likely needed to be arranged financing, and mortgages, is due at the closing.
Each developer has different deposit amounts, and schedules for the staged deposits.Typically, the lower the deposit amount, the more relaxed it is for buyers to gather the finance resource. For investors, the lower deposit amounts also allow larger amounts of leverage for capital gain.
Key Important Dates and Milestones
1. Occupancy Notification
This is when the building is getting close to occupancy, the developer will start to send out email or registered letter to indicate to the buyers to begin to shop and apply for mortgage.
2. Interim Occupancy
The developer will have 2 opportunities to postpone the interim occupancy. The last one is called the Final Interim Occupancy Date. On this day, the building renovation is done, and you will pick up the key from the developer. If this unit is intended for your own use, you are allowed to move in. If the unit is for investment, then you can begin to look for tenants.
At this Interim Occupancy Date, the ownership of the unit still belongs to the developer, and that the developer is only giving the buyers an opportunity to move in until final closing. Hence, buyers will pay a monthly occupancy fee to the developers, similar to rent, until final closing, when the ownership will be transferred.
3. Final Closing Day
Normally, the Interim Occupancy date and Final Closing days will be several months apart. On Final Closing Day, buyers have already found their financial institutions to provide the funds to pay the developer. At the same time, your lawyer will transfer the title for ownership.
Buying and Selling Toronto Real Estate
Whether you are buying your first condo, or selling a single-family home, Team Priscilla Han Realty can help you.
We are proud to serve the whole Greater Toronto Area (GTA), including but not limited to the CIty of Toronto, North York, Markham, Richmond Hill, Vaughan, Aurora, Scarborough, Mississauga, Oakville , Pickering, and Oshawa.
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