PRE CONSTRUCTION PROS AND CONS

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SOME OF THE DISADVANTAGES

Unexpected cost on closing which can typically range from $7000 to $20,000 dollars that clients don’t plan for or aware of. It usually comes as a surprise such as development charges.

Agreement clause. The agreement always have clauses that are mostly in favour of the builders protection hence clients lawyer should review the agreement of purchase thoroughly to determine if there are any items that could be of a negative impact on the client.

HST cost. On pre construction there is HST fee but one can apply for a rebate – they would get partial back or all at times. Speak with your builder and lawyer.

Living in a building that may still be undergoing construction so dealing with dust etc.

Not seeing the finish product at the time of offer but only provided with drawings and pictures. Plans can change as the builder goes along. I’ve seen it happen and that is a why a clause is in the agreement that the builder can change the floor plans as they go along. Many clients don’t know this.

Delays in occupancy/ closing date. Clients shouldn’t give up where they’re residing until they have the keys in their hands on their new purchase.

Coming up with the lump sum amount in 30/60/90 days as per the purchase agreement. This could be a short timeline for some clients to come up with the initial deposit amount.

Assignment clause. In some cases, builders will not allow an assignment and if they do, there is a cost associated and how many times you can request to assign the sale to someone else prior to closing. Clients can negotiate these terms prior to firming up an offer.

Sales agent such as realtors commission are held back. They would only get paid a portion upfront and rest on closing or some builders don’t even pay partial upfront and would delay.

SOME OF THE ADVANTAGES

Ample time to save for the required down payment and closing cost.

Locked in price today (at the time of purchase) and assuming the value will increase upon completion so you would have built some equity over the time prior to closing.

Choose your design finishes.

Can rent out the property upon occupancy which is on the interim closing. This can generate some income prior to closing.

New Home Warranty – For example, Ontario builders has Tarion Warranty

Have the option where some lenders will use the appraised value VS the purchase price which puts you in a better position to obtain a mortgage at a lower loan to value ( LTV)

Assignment clause. This option allow clients to assign the property to someone else prior to closing in case they cannot close due to unforeseen circumstances. Having the option could also be beneficial for investors who is looking to make some money over time from and not absorb the closing cost.

CONTACT

Ameera@cmfg.ca or call 647-494-9885 ext 101 to discuss your mortgage approval process.