Presales Explained: Deposits, Financing, Benefits, & Risks

Presales are currently very attractive amongst buyers in the Lower Mainland as developers are selling out hundreds of units within days. If you are a first-time homebuyer or new to the presale market, it’s very important for you to understand how it works before making a decision.

What is a Presale?

Presale condos and townhomes are made available to buyers before they are built. Developers give you the opportunity to secure a property that will be completed a few years down the line. Unlike conventional move-in-ready homes, buyers don’t need to arrange financing at the time of entering the contract. Buyers pay a deposit to secure rights to the future home and pay the full price when the project is complete.

Deposits

In order to purchase a presale, you need to put down a deposit. The most common deposit is 20% but many developers allow buyers to secure a unit with just 5%, 10%, or 15%.

This deposit is not collected all at once. The total deposit is broken down and scheduled to be made over time before completion. Here is an example of a deposit payment structure:

Total 15% deposit

1st Deposit: $5,000 bank draft upon writing the contract
2nd Deposit: 10% less the $5,000 within 7 days of acceptance
3rd Deposit: 5% 120 days after the 2nd Deposit
Recission Period

In B.C., there is a safeguard for presale buyers called the Recission Period. This 7-day period begins after the buyer enters a Contract of Purchase and Sale with the developer and acknowledges that they've received the Disclosure Statement document.

If a presale home buyer has a change of heart before the 7-day period is over, they can give the developer a written notice to walk away from the deal and cancel their contract.

Financing

It is a good idea to talk to a Mortgage Specialist before purchasing a presale in order to understand your financial situation and budget. However, you won’t need financing until your home is complete and the developer is issued an occupancy permit. 

So, if you don’t qualify for a mortgage today but have enough cash for a deposit, you can still purchase a presale unit. Just make sure you plan ahead and are prepared to close on the property when it is completed. 

Benefits

  • Ability to invest in real estate with just a deposit
  • Property value can increase significantly by the time it is completed
  • You are purchasing a brand new unit and have the chance to select from various plans and finishings
  • The presale will be covered by B.C.'s 2-5-10 Year Home Warranty Insurance
  • You have time to save for a down payment and arrange financing
  • The 7-day rescission period allows you to change your mind

Risks

  • There is no guarantee that the real estate market will continue trending upwards and your property value will increase
  • You are relying on floor plans, renderings, and showrooms when making the purchase
  • You are committing to a project that will complete in 2-4 years
  • The finished product may not be exactly what you were expecting

Summary

Presale condos and townhomes are a great option for homebuyers who are planning for the future and looking to take advantage of rising real estate prices. However, it is not the best option for everyone. It’s very important to work through the pros and cons with a Real Estate Agent before making a decision.
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