A Beginner’s Guide to the Pre-Construction Condo Process In Toronto

So you’re interested in buying a pre-construction condo to live in or as an investment but don’t know where to start? Here’s a guide from start to finish on purchasing a condo unit based on my recent personal experience.

If you do not mind waiting a few years to move into your new unit, you could potentially benefit from buying a pre-construction condo today and locking in at a set price. Of course, this is assuming that the future price for that same unit will be higher than it is today. Another benefit is that you don’t have to take out a mortgage until the closing date, which is after the unit has been built and you take ownership. However, it is important to take into account the developer’s reputation when deciding if a pre-construction condo investment is worth the risk.

Getting a Unit Allocated for Purchase

If you want to secure a condo unit the moment it is made available, it is in your best interest to contact brokerage firms that are selling units. Some developers don’t want the overhead of advertising and selling directly to the public so they generally go through realty brokers to sell their units. The realtor brokerages that usually have access to the earliest available units are classified as “ Platinum VIP agents”. If they have close ties to the developer, they might actually have units allocated to them prior to the pre-sale date. If an agent is telling you the exact unit number and price rather than the general floor plan information, this could mean that the realtor has already been allocated that unit by the developer. In this case, the realtor can reserve the unit for you and it will be an easier process for it to be yours. If the agency does not have units already allocated to them, or if the unit you desire is not one of the units they do have allocated, then they fill out a worksheet on your behalf. This document includes what unit type you are looking for, and you usually have to indicate second and third choices in case the first is unavailable. It is worth being aware that some realtors will ask you to sign a “buyer representation agreement” before they send in your worksheet. I would suggest that you be careful of agreeing to do this as it prevents you from working with other realtors. If the realty brokerage that you have signed with is unable to get a unit allocated for you, you will not be able to contact other realtors to see if they have any available.

Either way, at this point, the realtor should be able to tell you the unit number and price of the unit that you can purchase. If you are happy with the unit that the realtor was able to acquire for you, then you move to the signing stage of the process.

Signing the Paperwork for the Purchase

Assuming that the previous steps have occurred prior to the pre-sale, the realtor will arrange a time to meet them at the developer’s first day of signing. Pre-construction condos generally follow a 20% to 25% deposit structure with fixed payment schedules. On signing the initial document, a deposit of generally $5,000–$10,000 will be required and, for example, 5% deposit will be due in 30 days, 90 days, 180 days, and 540 days (payment schedule may vary by the developer).

To the initial signing, you will be required to bring 4–5 cheques as well as personal identification for yourself and anyone else making the purchase. At this meeting, you will have a sit-down with a representative of the developer and your realtor agent. During this time, you will be required to sign the “Condominium agreement of purchase and sale”. You will then be given a copy of your agreement and you have now entered the cooling off period.

Cooling Off Period

You have just signed and initialed a very long document that you did not have enough time to read through at the signing. However, even when you read it later at home, the document may be very hard to understand and it may be unclear to you what the stipulations of the purchase are. Luckily, in Ontario, you now have 10 days to review and submit the purchase agreement for amendment before accepting or rejecting the agreement.

It is highly recommended that you take it to a lawyer who specializes in pre-construction condo purchases. The lawyer will work on your behalf to make sure the agreement is in your best interest and is fair. For example, some condo developers may not put a cap to the closing fees they could pass on to you. If they are not capped in your contract, you may be hit with an exorbitantly high fee on closing.

Paying your Installments

So both parties agreed to your purchase agreement, congratulations! It is now time to make your payments in the installment schedule that was set in your purchase agreement. Start saving and make sure you have enough money in your account from which the cheques will be cashed by the developer. You don’t want to be hit with any administration fees for cheques bouncing at this point!

Interim Occupancy period

The Interim Occupancy Period is the time from the Occupancy Date to the Closing Date. At this stage, your unit has been built and the condo has been deemed structurally sound to inhabit but not all of the units in the building have been fully finished. Your interim occupancy period will be longer if your unit is on the lower floors of the building rather than the higher floors. At this point, you are required to pay Occupancy Fees to the developer. The Occupancy Fee is made up three components; 1) interest on the outstanding total amount, 2) property tax , and 3) maintenance fees . You are not actively making mortgage payments during this period and the unit is not technically in your name. The occupancy period ends when the building has been registered by the developer. It is in the best interest of the developer to make the interim occupancy period as short as possible because they don’t get their money from the banks until the building is registered.

When does the occupancy period start?

On your purchase agreement, the developer has indicated when the The First Tentative Occupancy Date is. This is the date that the developer anticipates that the unit will be completed and ready to move into. Generally, the developer can delay occupancy with written notice. However, your contract may specify an Outside Occupancy Date, which is the last day that they can delay. Past this day, you may be given the option to terminate the transaction. In this case, you may be entitled to delayed occupancy compensation and to a full refund plus interest.

Closing Date

So, on the closing date, the title of the property will be transferred to you. Congratulations, you now officially own the unit! However, on this date, you must also pay for the closing fees. Closing costs are different for every pre-construction condo. In Toronto, the closing fees include the land transfer tax, development charges, and legal fees.

I hope you learned more about the pre-construction process at a high level. Best of luck searching for your dream pre-construction condo!

Note: This article is based on my personal experience alone. The process, including details in the contract, may be different based on the developer and brokerage firm.