7 Things You Need to Know About Buying Pre-Construction Homes

The pre-construction vs. resale debate is a common topic among many home buyers – especially first-time home buyers looking to enter the market. In many cases, pre-construction homes play out to have more benefits – they’re typically the cheaper (and easier way) to enter the market.

However, it’s not an approach for everyone – here are the seven things you need to know about buying pre-construction:

Minimal Bidding Wars

Within a subdivision, developers set the price based on various factors, such as recent sales data, lot size, square footage, and floor level (for condos). Buying pre-construction gives you the peace of mind of purchasing at a known price. In heated markets, bidding wars tend to outprice buyers, and can be an emotional process for many.

Do Your Research

It’s easy to get caught up in the sales/marketing tactics used at the presentation centres – don’t let that fool you. Always do your research before buying a home from a developer. Take a look at their past projects, whether or not if they’ve been successful. If you have a chance, tour their model homes and/or open houses that were built by the same developer.

Urbancorp is one example of a real estate developer that went underwater. Consult with an industry professional and/or real estate lawyer. Buying a home from a developer with weak financials is the last thing you’d want to happen.

Design Studio Options

Designing your home is easily one of the most exciting parts of the pre-construction home buying process (although it can be easy to get upsold at the design studio). However, I recommend focusing on structural upgrades, such as hardwood floor stairs, and floor plan options. These upgrades would be more expensive to do after closing. If you have additional room in your budget, focus on features that boost the resale value of your home.

Down Payments

Down payments vary per developer. Condo projects typically ask for 20 per cent down payment over a period of time (usually one to two years). In some cases, there are deals for 10 per cent down (this is typically available as a VIP incentive and/or when the condo is under construction. Freehold, low-rise homes usually require down payments between $40,000 – $100,000. Again, it depends on the developer (and the prices of the homes being sold). Some freehold projects ask for down payments north of $100,000.


No surprise here – delays are common, especially for pre-construction condos. Some projects can be delayed by as much as two to three years. This is where the research comes in handy – some condo developers are known to have minimal delays and higher customer satisfaction with the interior/exterior finishings. On the other hand, low rise pre-construction homes experience less delays than condo projects.


There are two main things you need to know about financing and pre-construction projects: the difference between a pre-qualification and a pre-approval, and the appraisal of the home upon closing.

When consulting with a mortgage advisor, ask for a pre-approval. Pre-qualification is where the income, assets, debt, and credit history is reviewed. Pre-approval, on the other hand, is more of a firm agreement from the lender (it’s essentially the next step after a mortgage pre-qualification). I recommend having this ready before going to the sales office, in order to have a better idea of how much house you can afford, and to be prepared to sign the legal documents.

Upon closing, the bank can only lend up to the purchase price of the house. Let’s use the example of a buyer buying a pre-construction townhouse a year before closing for $500,000. Upon closing, the property is worth $550,000. In order to avoid the CMHC premiums, the buyer would still have to put down minimum 20 per cent of the purchase price of the property ($500,000 x 20 per cent = $100,000), although it has increased $50,000 in value. In other words, lenders only use the purchase price of the property for the mortgage, despite the fact the property increased 10 per cent.

Closing Costs

As Sean Cooper mentioned, closing costs are one of the most hidden ‘real estate’ topics. The general rule of thumb is to have approximately 2 – 4 per cent of the home’s purchase price saved up for closing costs. Review the documents with your real estate lawyer – there would be more details on closing costs, such as development levies, and driveway paving (for low rise homes).

The Bottom Line

There are other advantages of pre-construction homes – such as the chance to design your home, from the baseboards to the colour of the kitchen cabinets. The duration of the construction also gives homebuyers the opportunity to save additional money towards the down payment and other home related expenses (the mortgage doesn’t start until the property closes).

Before buying a pre-construction project, always consult with a realtor, to make sure you’re getting the right deal. For condos, some real estate agents have access to VIP packages – providing lucrative discounts to buyers. Some packages include a credit towards condo maintenance fees for a certain period of time.

Last but not least, check out the sales data in the area, to get an idea of the market price. This information can be found via your realtor.

Home buying is always a fun, and learning experience. Do your research, and get it done right the first time, especially with pre-construction projects.

Leave a Reply

Your email address will not be published. Required fields are marked *