What is a Presale Home?

Explaining the Basics of Pre-Ownership of Residential Properties

Explore the benefits of purchasing a presale condominium with the guidance of our seasoned professionals. So just what is a Presale home? A presale home (condominium/townhouse) refers to a unit that is marketed by a developer prior to the finalization of the construction process. This pre-sale arrangement enables developers to secure funding for the ongoing construction project.

Opting for a presale condominium can offer advantages to individuals interested in acquiring a new residence or investment asset at a conceivably reduced cost, compared to the finalized unit when completed. At the same time, purchasers need to meticulously evaluate the potential hazards connected with this transaction. Elements such as delays in construction, exceeding budget constraints, fluctuations in the market, and shifts in the economy may influence the scheduled completion date and the ultimate standard of the property.

By purchasing pre-sales, the buyer acquires the title to a finished property to be constructed in the future. This approach to buying property is widely used in various international markets, throughout Canada, and is very big in British Columbia.

Presale First Steps
So out of the gate, one of the very first steps would be to conduct comprehensive research on both the developer and the project; this is essential to making a well-informed decision. It is recommended to carefully examine the purchase agreement before finalizing any presale commitment.
Typically, the buying procedure includes an initial payment and a formal agreement with the developer, which is guided by distinct legal statutes and protocols aimed at safeguarding purchasers in British Columbia.

What Motivates Customers to Purchase Before the Release Date?
Pre-sales are attractive to investors and buyers as they have the potential to see an increase in the property’s value without the burden of a mortgage, property taxes, maintenance fees, or tenant-related issues during the initial building phase. Additionally, pre-sales offer owner-occupiers the flexibility to personalize the purchased property.

Advantages of Buying a Condo during Pre-Sale
Purchasers of presale condominiums frequently enjoy the advantageous prospect of property value appreciation prior to the construction’s finalization and the opportunity to personalize specific features of their unit.
Potential for Modifications: Developers have the option to modify architectural or unit designs, potentially resulting in variations between the final product and its original advertisement.

Presale Risks
The possibility of facing delays is a prevalent issue in the construction of presale condominiums, often leading to dissatisfaction among buyers who have set specific relocation schedules.

Construction delays frequently occur in the construction industry. It is advisable to investigate the developer’s historical performance in delivering projects punctually and factor in the possibility of delays when finalizing your decision.

Real Estate Market Volatility: The real estate sector is known for its unpredictable nature. Although investing in presale properties can yield substantial profits, it is crucial to anticipate and manage market fluctuations effectively.
Potential Financial Instability Risks: Should the developer encounter financial challenges, it could lead to repercussions on both the construction progress and the buyer’s capacity to finalize the unit purchase.

What Motivates Developers to Pre-sell Condominiums?
Developers commonly must secure a specific percentage of units in the building through pre-sale before commencing construction to demonstrate to their financiers the project’s feasibility in the market and its potential for near full occupancy.

Upon the completion of selling the specified percentage of presale units in the building by a predetermined deadline, the lenders will disburse the funds to initiate the construction process.

To date, most new residential properties in British Columbia are typically sold before completion rather than after.

Understanding BC’s Regulations for Protecting Presale Condo Buyers
Numerous regulations and statutes governing the acquisition of presale properties and new residences in British Columbia extend beyond the scope of this article.

In this article, we will delineate the primary aspects that presale buyers in BC, as per REDMA regulations, are most likely to pay attention to when purchasing a presale condominium. Initiate the termination of the agreement under the Seven Day Rescission Period without incurring any penalties, enabling the cancellation of the deal within a week.

The 7-Day Rescission Period Explained
The buyer is granted a 7-day timeframe to conduct thorough research, which may involve seeking advice from their legal counsel, accountant, financial advisor, mortgage specialist, and reviewing the disclosure statement.

This regulation permits a purchaser of a presale condominium in British Columbia to withdraw from the agreement within seven days of receiving an approved offer for a presale or newly constructed residence without incurring any penalties. Once the 7-day rescission period concludes, the contract automatically becomes enforceable for the buyer unless they formally exercise their right to rescind in writing.

Presale Deposits
When purchasing a presale condominium in British Columbia, it is mandatory to submit a deposit as an integral component of the process. Deposits made for presale condominiums are safeguarded and are refundable in the event of a cancellation of the presale project.

Any funds submitted by the purchaser of a property before its construction are securely maintained in a legal trust account. These funds are inaccessible to the developer until the construction is finished or if the developer breaches the agreed-upon timeline for completion. In the event of developer insolvency, the funds in the trust account are safeguarded from bankruptcy proceedings and must be refunded to the purchaser.

This fund must remain within the account until the project reaches its conclusion or is terminated. Should the presale project be terminated, the presale purchaser is freed from the presale real estate purchase agreement, and the funds they deposited in the escrow account are refunded. Funds deposited in the trust account are legally protected and cannot be considered as part of a developer’s or project’s assets in the event of bankruptcy.

Disclosure Statement
Presale condo buyers must receive a Disclosure Statement from developers, as per the rules under REDMA, and as such also must provide a disclosure statement to purchasers of presale condominiums upon the buyer’s acceptance of the purchase offer.

This document is crafted to empower a purchaser in making a well-informed choice regarding the acquisition of a new residence in British Columbia. It serves as an integral component of the presale agreement utilized for buying the property.

The disclosure statement is an extensive written document containing thorough details concerning the project, the developer involved, the projected completion timeline of the project, as well as the refund process for the buyer in case the project remains unfinished, among other pertinent information.

The Disclosure Statement contains vital details regarding the property you intend to purchase, including the dimensions of your unit, the inclusions within the unit, and the architectural depiction of the building. It is crucial to thoroughly review its contents.

Are Pre-Sales Safe?
Under the regulations of the Real Estate Development Marketing Act in British Columbia, engaging in Pre-Sales is considered secure provided you make purchases from a trustworthy Developer. If you have concerns about a development, you can contact the BCFSA or REDMA (below).

What Authority Oversees Presale Regulations in British Columbia?
The British Columbia Financial Services Authority (BCFSA) oversees and upholds regulations and legislations concerning real estate in British Columbia, with a particular focus on presale condominiums and houses.

The Real Estate Development Marketing Act (REDMA) in British Columbia governs the presale condominium regulations, aiming to safeguard purchasers by empowering them to make well-informed choices regarding their new home acquisitions.

Learn More
If you are interested in purchasing a presale condo or townhouse, this process requires careful consideration of various factors. Our team of presale experts are here to provide you with more insight relative to your specific situation. To help guide you through the process, feel free to contact us for any inquiries.