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Understanding Pre-Construction Condo Deposits

Pre-construction condominium projects have been proving to be a great way to enter Toronto's real estate market, keep in mind that the processes around buying and financing these projects are fairly different in comparison to buying a typical residential home. In this article, we will break down some very important things and jargon about the pre-construction deposits and much more.

How much is a deposit on a pre-construction development project?

One of the advantages of buying or investing in a pre-construction project is that you do not have to come up with your entire deposit all at once. Instead, your payments are usually spread out over some time. Although most projects are different and every standard deposit structure and timeline would change depending on construction periods and closing timelines, a pre-construction deposit structure would typically like something like this:

- $5,000 on signing (Dated 10 days from signing)
- The balance ( less $,5000) of 5% in 30 days from the date of signing
- 5% in 90 days from the date of signing
- 2.5% in 120 days from the date of signing
- 2.5% in 180 days from the date of signing
- 5% on occupancy

A deposit structure can be carved out over 12-24 months in a typical pre-construction project agreement. Purchasing or investing in a pre-construction project offers you much more time to come up with liquid capital in comparison to a traditional resale purchase, given that it spreads out the payment structure. Be sure to read all aspects of the contracts that you are signing.

We often come across advertisements asking for a 5-10% downpayment for pre-construction projects. In my years of dealing with residential pre-construction projects, I have never come across one of these attractive offers that don't have strings attached or clauses buried in the fine print. As a buyer you need to be very aware of what you’re getting into as the structure of these clauses may change from case to case but the intent is always the same.
Taking the first step
Once you have looked into various pre-construction projects in your area, make sure that you read about the builders and make sure that you are going with ones that you can trust, feel free to reach out to trusted brokerages and real estate sales agents or salespeople as they usually have long standing relationships in the market and can tell you a lot about the inside reputation and help you build your confidence for selecting your pre-construction project.

Now that you have nailed down the pre-construction project that you are interested in, you would go into the showing office with your real estate salesperson (if you chose one) to sign a pre-construction contract drawn out by the builder's legal team. If you want to learn more about Pre-Construction Contracts follow the link to our blog delves deep into that topic.

You will carry the first deposit and your documents to the signing meeting. Keep in mind that for any legal contract to be binding, it needs to contain three main things.

01. The Offer: The first element of a valid contract is an offer. One party (in this case the Builder) makes an offer to another party (you). In a sales contract, the offer is the item being sold, (real estate). The seller is the owner of the property being transferred (the builder or any legal proxy). The purchaser is the party who is receiving the goods (you).

02. Acceptance: The offer that is presented in the contract must be accepted by the other party (you) for the contract to be valid. Usually, both parties sign the contract signifying the acceptance of the terms of the contract.

03. The Consideration: The parties must exchange consideration as an element of the offer and acceptance. In this case, the consideration is usually in the form of cash or cheque (your deposit - as specified in the negotiation). The key for this element is that the parties are exchanging something of value as a requirement of the offer and acceptance.

The cooling-off period
According to Section 73 of the Condominium Act, people in Ontario who buy a pre-construction residence from a home builder are granted a cooling-off period, during which the buyer can rescind their sales agreement for any reason and essentially walk away from a deal scot-free. A very important thing to keep in mind is that this clause applies to you regardless of whether you employ the services of a Real estate agent / Salesperson, a Brokerage, or if you're doing all the heavy lifting yourself.

Know that at the end of these ten days, you might not be notified that your cooling-off period has expired. You will be directly responsible for making the deposit payments as negotiated and mentioned in your contract.

Working with an experienced real estate agent
An experienced real estate agent or salesperson will be able to get you access to hot development projects that are not on the market yet and will likely sell out long before they ever reach the public. They will also guide you towards projects and developers that meet your needs and expectations while keeping you away from those to be avoided.
While developers have sales teams that sell their projects, it is always important to remain cognizant that they represent the developers’ best interest but at the end of the day, they want to sell you the property; it is very important to understand that builders are not trying to steal your money or only focus on their gains.


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At ARE, we have a proven track record of working with avid pre-construction investors & Buyers. Having helped hundreds of clients successfully buy and invest in pre-construction projects; We can help you create a strategy that works for you and assist you in navigating your way to the right opportunity - Book a Free Consultation today :)



Next Topics
Occupancy and Closing
Negotiating terms
Flexible payments and much more
Closing Costs and Interim occupancy

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