Positively presale: Maximize the benefits

Presales have long been integrated into the fabric of purchasing a new multi-family home, whether it’s a condo, a townhouse, or a stratified single-family home. The basic process is straightforward: purchasers pay a deposit before their home is built, often before construction starts, to secure the unit of their choice. Then they can watch their new home evolve before their eyes.

A pre-sale unit offers many positive advantages. Jamie Squires, president and managing broker of Fifth Avenue Real Estate Marketing, shares her insights about how you can maximize these benefits and potentially enjoy greater bang for your home-buying buck.

New Home + Condo Guide: What are some of the financial advantages of purchasing a presale?

Jamie Squires: The most obvious one is that you’re locking in at today’s prices. Historically, housing prices continue to go up, so you’re building equity even before you take possession. That means that at completion, you could use this increased equity to get a line of credit to purchase new furniture, go on a vacation, or apply it directly to the down payment at a favourable rate.

And one thing many people don’t realize is that since you’re now financing a smaller portion of your home’s value, it can reduce the percentage you’ll pay for the required Canada Mortgage and Housing Corporation (CMHC) loan insurance. There’s a huge difference between paying 0.6 per cent if your loan-to-value ratio is 65 per cent and paying 6.3 percent if the loan-to-value ratio is 90 per cent.

Plus, you’ll have the extra time to save up more money toward your down payment.

NH+CG: For most, getting pre-approval on a mortgage is a standard part of homeownership. Should buyers be concerned about rising interest rates that could impact their ability to borrow?

JS: Blanket appraisals are now becoming more common as a safeguard against this. Rather than the old practice of a rate hold that lasts several months, a blanket appraisal will hold the negotiated rate until completion. And if, by some fluke, interest rates do go down, you’ll get the lower rate. So, it’s a win-win situation.

NH+CG: What about the added cost of the GST on a new home?

JS: Yes, your new home is subject to the five per cent GST, which a resale isn’t. But unlike the property transfer tax (PTT) that has to be paid in cash on closing with a resale, you can finance a presale’s GST into your mortgage. So, while the GST is technically higher, the long-term effect is less.

NH+CG: During the pandemic slow-down, developers began offering increasingly creative incentives during the pre-sale phase. Is that still true?

JS: It depends on where a property is located. In an area like Willoughby in Langley, there’s still plenty of competition, so developers are more likely to offer incentives like free upgrades, a decorating allowance, reduced assignment fees, or gift cards to local merchants.

On the other hand, municipalities where there is limited pre-sale supply, such as Abbotsford or Aldergrove, there isn’t the same need to get creative.

NH+CG: What’s your number-one piece of advice for anyone looking at the pre-sale market?

JS: Read the sales contract. If there’s something you don’t understand, ask questions until you do. And when an addendum is released, read that as well—every page of it.

More than 90 per cent of buyers now work with a realtor who should be able to explain your contract, especially the sections about completion dates. People don’t realize that a completion date can never be guaranteed, especially now with the ongoing supply chain issues we’re experiencing as well as the bottlenecks caused by slowdowns in municipal approvals or services like hydro. These are totally outside a developer’s control, but they can have a big impact on a buyer.

One of the things I see over and over again is that people don’t pay attention to the difference between the anticipated completion date and the outside date for completion, dates that can range from a few weeks to more than a year.

Make sure you have accommodations in case your possession date is delayed, especially if you’re renting and need to give notice. It’s a lot cheaper to pay an extra month of rent than to be forced to live in a hotel for four or five months or even longer.

NH+CG: What excites you most about presale?

JS: The choices you get to make. Usually, you can pick things like which colour palette you prefer, flooring, and appliance upgrades. Plus, you get the best selection of location within a development and the lowest pricing.