Kelowna’s pre-construction market is booming!Here are 10 things you need to know before falling in love with that model suite:
1. The Deposit
While purchasers of resale condos in Kelowna generally provide a deposit of 5% upon signing of the agreement, builders generally require significantly higher deposits in order to fund the construction – often as high as 15 or 20%. Usually a set amount $3,000, $5,000, etc.) is required when the agreement is first signed, and the balance to 5% is due within 10 or 15 days. From there, there are various ways the remainder of the deposit is paid – for example, an additional 5% at 30 days, 5% at 90 days, 5% 180 days, or sometimes the deposit is timed with the phases of construction (5% when they break ground, 5% on occupancy, etc.). Point is: be prepared to pay the builder a much larger deposit for a pre-construction condo.
2. The 10-day Cooling Off Period
In British Columbia, every purchaser of a new condo has 10 days to reconsider their purchase. Note these are calendar days and not business days. During the 10 day cooling off period, a Buyer should arrange to get financing pre-approval and have the agreement reviewed by their lawyer. If the Buyer changes their mind (for any reason) during the 10-day cooling off period, they can back out of the contract and have their deposit returned without deduction.
3. Waiting, Waiting, Waiting. While builders will provide an expected completion date for the condominium, rarely (if ever) are condos completed on time. Builders have the right to delay for all sorts of reasons and for a surprisingly long time. The actual delays and builder penalties (if any) are outlined in the agreement of purchase and sale, but in our experience, add at least 6 months – and up to 2 years for delays.
4. The Only Constant is Change.
Builders have a fair amount of leeway to make changes to the units and buildings, even after they have pre-sold them. We’ve seen builders add or subtract floors, change layouts and decide that the rooftop pool should now be in the basement. Buyers are protected from any “material changes”, but you might be surprised to find out what is and is not considered “material”. Read the sales agreement and be prepared to be flexible.
5. The Interim Occupancy Period
When the condo is built and ready to be moved into, there is a period of ‘interim occupancy’, where the Buyer can take possession (in other words, move into the unit). During the period of interim occupancy, the Buyer does not yet own the condo; they simply pay the builder an amount roughly equal to what their mortgage payment + condo fees + taxes will equal. No transfer of land has yet occurred, and no mortgage has yet been given.
6. Condo Fees in new buildings are usually set arbitrarily low
That’s partly because they are estimated years in advance of the condo being built, and partly because they don’t know the actual costs of running the building. The skeptic in me also wonder if it isn’t a sales strategy too. Expect condo fees in new buildings to increase substantially during the first 2 years, usually 10-20%.
7. Registration of the Condo
Once a building has passed all the city inspections and gone through all the processes to become a legal entity, condominiums are officially registered. During this registration period, condo ownership is transferred to the Buyers, mortgages come into effect and Buyers officially become owners (a.k.a. the closing). This registration period can take anywhere from 3 months to 2 years (though usually it happens 4-8 months after people begin to move in for the interim occupancy period).
8. Builder Closing Costs
When the unit is officially registered and you close on the purchase, you may be responsible for all sorts of closing costs that don’t apply to resale units These ‘builder adjustments’ may apply to all new construction projects and include development and education costs, GST on appliances and utility connections fees. These builder closing costs can easily amount to 1-3% of the original purchase price. If you’re looking at taking over someone else’s contract via an assignment, look to see if the original purchaser capped the amount of these costs when they originally negotiated the unit. Otherwise, make sure you have lots of money put aside for closing costs.
9. The Condo Reserve Fund
When you buy pre-construction, you may need to contribute 2 months condo fees to the condo’s reserve fund (the emergency fund). This usually happens at the time of closing.
Unlike resale condominiums, new condos are subject to GST. If you’re an end-user (you’ll be living in the unit yourself), you’ll likely qualify for an GST rebate. If you’re an investor however, you may have to pay thousands of dollars in GST upon closing. GST rules are confusing at best, but make sure to get legal advice about whether you qualify for the GST rebate before you buy a condo.
Buying a pre-construction condo isn’t nearly as straight-forward as buying a resale condo. Remember that the person at the sales centre works for the builder and their job is to get the best prices and conditions for the builder, not for you.
If you’re thinking of buying a pre-construction condo in Kelowna, you’re probably wondering if you should use a Realtor or go it alone. Of course, we’re biased (we are Realtors after all)…but here’s the case for using a Kelowna Presales Realtor:
♦ Many Buyers buy directly from the Builder, but the sales guy at that gorgeous model suite works for the Builder, not for you. His job is to get the highest price and the best conditions for the Builder. He doesn’t care if you don’t get the best price, or if you sign a contract that restricts your ability to resell or rent the unit–he works for the Builder, not for you. How can that be a good idea?
♦ Yes, when you use a Realtor to buy a pre-construction condo, we get paid (imagine–we get paid for our work!). But don’t be fooled into thinking that if you don’t use a Realtor, that you’ll pocket the money we would have been paid. That money will go to the Builder’s sales team (or maybe the Builder himself). Have you ever heard of a Buyer getting a discount because they didn’t use a Realtor? Me either.
♦ By the time a new condo project goes on sale to the public, most of the good units are already sold–in fact, we routinely see condos or lofts that are already 50% sold by the time of the public opening. The ONLY WAY to get the best units (high floors, best layouts, good views) is by partnering with someone who has VIP access to the condos BEFORE they go on sale to the public. And if you’re working with the right VIP Realtor, you should get special VIP pricing and upgrades too.
♦ Yes, Builders are notorious non-negotiators. But there ARE things that a knowledgeable Realtor can negotiate for you–from upgrades to a cap on your development closing costs (See? you probably didn’t even know that closing costs for pre-construction condos can be thousands and thousands of dollars more than a resale a condo and they CAN be capped)