Everything You Need to Know About Buying a Pre-Construction Condo

If you would rather buy a brand new condo that is built for you than a pre-owned condo, you have some work to do. While it’s great to buy a condo that was built to your specifications, there are certain things you need to handle to make sure the process goes smoothly.

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The Benefits of Buying a Pre-Construction Condo

First, let’s look at the benefits of buying a pre-construction condo:

  • You get your choice of units rather than settling for the location of a pre-owned unit
  • You can choose the builder based on their reputation, price, and referrals
  • You have a say in the floor plan
  • You can choose the upgrades
  • You may enjoy greater energy efficiency
  • You may get a warranty in the event that anything goes wrong with the home

Preparing to Buy a Pre-Construction Condo

Before you decide to buy a pre-construction condo, you have to prepare yourself. Remember, the sales people that work for the builder want to make a sale. They may tell you what you want to hear. You need to prepare your list of questions to make sure that you are as prepared as possible for the process.

You’ll probably want the answer to some or all of the following questions:

  • How will parking be handled?
  • Where is the closest public transit?
  • How close is the building to the highway?
  • What is the village doing with the surrounding land in the next few years?
  • Ask to see all of the available floorplans
  • Ask to see all of the available upgrades
  • Ask which units are available now and which are being held until a later date

Next, you’ll want to know the amount of the down payment the builder requires. Expect this amount to be much higher than you might need for a resale condo. We are talking near the 20% range. If you buy a resale condo you may get away with a down payment of just 5%, just so you can see the difference.

You’ll pay the deposits in increments. Ask the builder how much they require up front. Expect this amount to be $5,000 or more. From there, you’ll likely make installment payments every 30 days. This is usually a percentage of the purchase price. Again, each builder is different, so ask specific questions about this when you are shopping around.

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You should also ask the builder about their intended completion date. Take this date with a grain of salt though. They are generally at least a few months off, so make sure you have proper plans to have a place to live should the completion date get delayed.

Use Your Cooling Off Period

When you buy a pre-construction condo, you get what’s called a ‘cooling off period.’ This is a time that you get to think about your decision. It’s usually 10 days long, but you can ask the builder how long they give. If you decide to change your mind within the allotted time, you won’t forfeit any money you put down. You can walk away from the transaction as if it never happened.

We recommend that you secure the services of a real estate attorney during this time. This way he can go over the purchase contract and see if it’s worth you signing. If the attorney sees issues within the contract, this is the time to go over them before you have to make a decision to sign or walk.

Ask About the Condo Fees

Every condo has homeowner’s association fees. They are usually much higher than association fees in single-family home neighborhoods. The association covers the cost of all external maintenance and repairs. They also take care of all maintenance and repairs in the commons areas. They pay for this with the dues collected from homeowners.

Make sure you ask not only how much the association dues are at the onset, but also how much they are expected to increase over time. It’s not unusual to see rising association dues for at least the first few years that the development is built and the association gets settled.

Do Your Research

Most importantly, make sure you do your research. A condo developer will have a lot of your money in his hands, which means you should know how they operate well. Don’t just use a builder because you heard they were good. Instead, do your own research, ask for referrals, and read reviews for yourself online.

Don’t hesitate to check out the Better Business Bureau and see if there are any registered complaints about the builder. Read other third party websites too so that you have a good idea of how the builder operates and if they are legitimate.

Don’t be afraid to ask the builder for referrals from other buildings they have built. This way you can hear first-hand what others think of the builder. Is the condo development in good condition? Did the builder deliver as promised? Did the fees go up without any warning? Were there any issues that that would make them regret their decision?

Buying a pre-construction condo is exciting and overwhelming at the same time. Take your time, learn as much as you can, and negotiate the price as much as you can to make sure you get the best deal on your condo.

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JMcHood

Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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