Pre-construction real estate presents a lucrative opportunity for both investors and homebuyers, offering early access to newly built properties with the potential for long-term appreciation, along with other benefits for both real estate professional and client. However, navigating the pre-construction sales process requires an in-depth understanding of how these transactions work in Canada. Real estate professionals must guide their clients through each stage, from VIP sales access to deposit structures and builder agreements, ensuring they make informed decisions.
Why You Should Consider Pre-Construction Developments for Your Clients
Pre-construction properties offer advantages to both clients and real estate professionals. However, it is important to note that, like any aspect of real estate, their benefits depend on market conditions, developer policies, and the real estate professional’s ability to navigate the process effectively.
Client Benefits
For buyers, pre-construction provides an opportunity to secure a property at today’s prices with a staged deposit structure, allowing them to build equity over time. Early buyers often gain access to lower pricing and incentives such as capped closing costs, upgrades, and flexible payment plans. Additionally, pre-construction homes come with modern layouts, energy-efficient designs, and warranty protection through programs like Tarion in Ontario, reducing maintenance risks compared to older properties. Investors may also benefit from price appreciation before closing or the option to assign the unit, though this depends on market conditions and developer policies.
Real Estate Professional Benefits
For real estate professionals, pre-construction sales can offer higher commissions which may exceed resale rates, particularly in VIP phases. The process involves no showings or staging, though it requires extensive advisory work to ensure clients understand contract terms and financial obligations. There is also the potential for repeat business by facilitating assignment sales or reselling completed units. Professionals should be aware, however, that commissions may be paid in stages, and successful transactions depend on market stability and your ability to build strong developer relationships and maintain long-term client engagement.
What Real Estate Professionals Need to Know
It’s important to note that the pre-construction market is subject to fluctuations influenced by various factors, including economic conditions and interest rates. Terms, deposit structures, and other details can vary depending on the developer and the specific project.
VIP Sales and Platinum Access
Pre-construction sales can offer access to early pricing and incentives. Developers typically release units in phases, with the most desirable pricing and incentives available to a select group before the general public.
Platinum and VIP Sales
Developers first offer units to top-producing agents who have built relationships with them. These agents can secure the best prices, floor plans, and incentives for their clients.
Early Buyer Incentives
Perks such as capped development charges, extended deposit structures, free upgrades, and assignment rights are commonly offered in early sales stages.
Value in Buying Early
As more units sell, developers typically raise prices gradually. Additionally, clients who buy in early phases often benefit from built-in appreciation by the time construction is completed.
For real estate professionals, fostering relationships with developers and securing VIP access for clients is crucial to ensuring they get the best possible deals.
Deposit Structure and Payment Schedules
Unlike resale transactions, pre-construction purchases require structured deposit payments rather than a single down payment. Developers set deposit schedules to secure financing for the project, and buyers must be prepared to meet these obligations.
Typical Deposit Structure
Most projects require a 15 to 20% deposit, spread out over one to two years, although this can vary. For example:
- $5,000 on signing
- Balance to 5% in 30 days
- Additional 5% in 90 – 180 days
- Another 5% in 365 – 540 days
- Final 5% at occupancy (if applicable)
Extended Deposit Plans
Some developers offer more flexible structures to attract buyers, especially in slower markets.
International Buyer Deposits
Non-resident buyers often face higher deposit requirements, typically around 35%.
Educating clients on deposit obligations is essential to ensure they have the necessary funds and timeline expectations.
Builder Agreements and Crucial Contract Clauses
Pre-construction agreements are complex and often heavily favour the developer. Reviewing key contract clauses is critical to protecting clients from unforeseen costs and risks.
Cooling-Off Period
In Ontario, new condo buyers have a ten-day cooling-off period to review the agreement, consult a lawyer, and withdraw without penalty. Other provinces may have different regulations.
Development Charges and Closing Costs
Many contracts include clauses allowing developers to increase costs at closing. Agents should ensure that development charges are capped to prevent excessive fees.
Occupancy Fees (‘Phantom Rent’)
In condo projects, buyers may take possession before final registration, requiring them to pay monthly occupancy fees without officially owning the unit.
Assignment Clause
This allows a buyer to sell a unit before closing. Some developers prohibit assignments, while others charge a fee for this right.
Construction Delays and Cancellation Clauses
Delays are common, and buyers should be aware of their rights if a project is significantly postponed or cancelled. Encouraging clients to consult a real estate lawyer before signing is a best practice to ensure they fully understand their contract.
Interim Occupancy and Final Closing
In condominium developments, there is a period between when a buyer takes possession and when the building is officially registered. This is known as the interim occupancy period and can last several months.
During this phase, buyers must pay occupancy fees, which cover estimated property taxes, maintenance fees, and interest on the remaining balance owed. Final closing occurs once the building is registered, at which point the buyer secures a mortgage and officially takes ownership.
For freehold properties, buyers typically take direct ownership upon completion, though delays in municipal approvals can still impact the final closing timeline.
Understanding the pre-construction sales process is essential for real estate professionals looking to guide their clients toward informed decisions. By leveraging VIP access, navigating deposit structures, scrutinizing builder agreements, and explaining the benefits of pre-construction, agents can position themselves as experts in this sector.
