Pre-Sale Condo Risks

Friday, February 7th, 2020

Rachel Fung

As a Realtor, I, Rachel Fung, have clients who started their condo search ask about pre-construction units. They moved forward and in the end these projects got cancelled so I felt I should share some of the risks with you. Here are some of the most common questions I get about pre-construction condos. 

Construction of what was then the Glenora Skyline project which was on hold for three years.

“Isn’t it cheaper to buy a pre-construction instead of a resale condo?”

This was probably true 10 years ago, but not anymore. The advertised price you see on a pre-construction is never the price you actually end up paying. All of the hidden costs, including builder fees, closing costs, GST, and occupancy fees, can add up quickly.

Also, the price you see often doesn’t include parking or a locker and the advertised prices are always for the smallest units. Condo maintenance fees can rise quickly right after completion. This is because fees are set arbitrarily low to drive interest in the units and the costs of running the building haven’t been determined.

“What are the biggest risks in getting a pre-construction condo?

Here are three common risks:

1. Unexpected builder closing costs

Many pre-construction condo buyers scramble to come up with thousands of dollars in closing costs that aren’t made clear to them.

When a unit has been registered at completion, buyers are also responsible for builder adjustment costs. Always check if the developer has capped the builder closing costs. Otherwise, the bill could be very high.

2. Pre-construction specialists and builder’s agents

Developers choose which units are released and who they go to first. The majority of good units are released to pre-construction specialist agents who represent hundreds of investors. In other words, the general public fights over the leftover units.

The builder’s salespeople are hired to sell you units. They work for the builder and their job is to sell as many as they can. Looking out for your best interest isn’t part of their job.

3. Delays and cancellations of pre-construction condos can create financial challenges

I had a client whose pre-construction condo was delayed by 2 years, which affected their plans to sell their home and relocate. Some developers have also been known to cancel projects entirely because of rising taxes and building costs in certain municipalities. Many people are calling for more home buyer protections especially after repeated condo cancellations.

“Could I lose my deposit if the building construction is cancelled?”

You wouldn’t lose the deposit. But getting a deposit back after 2 or 3 years with no interest after real estate prices have increased by 20-30% could mean you’re priced out of the market or are worse off than when you started.

“Don’t I get pre-construction warranty protection from the government if there are any defects?”

You do, but having them pay out can be a very time-consuming process. A Star investigation found that many buyers had a hard time proving the cause of building deficiencies to successfully make a warranty claim because of the many inconvenient requirements.

Some people were forced to hire engineers and ventilation specialists to try and prove the problems. That is a very expensive and long process that may not even result in a successful claim.

Please note, these risks are most applicable to end users and not investors. If you have lots of flexibility in your budget, timeline and type of unit, much of the below may not apply to you.