Updated by Mike Stewart Realtor, on July 13, 2023
Vancouver New Condos specialize in helping buyers and investors purchase new construction and presale condos in British Columbia. We wrote this article to cover the basics of what a presale condo is in BC as part of our efforts to inform and educate potential buyers on these transactions.
What is a Presale Condo in BC?
A presale condo in British Columbia, also known as a pre-construction condo or an off-plan property, is a real estate transaction where a unit in a condominium, townhouse, or even a single-family house is purchased before it has been built. This method of purchasing real estate is common in many global markets, including British Columbia, where it’s especially prevalent. When you buy a presale condo in British Columbia, you’re purchasing a unit in a development before the construction has started or before it’s completed. Developers typically offer these presale condos for sale to secure funding for the construction of the project.
Why do Developers Pre-sell Condos?
Developers typically need to pre-sell a certain percentage units in the building before construction has started to prove to their lenders the project is market viable and can be sold out or near to this target. Once the developer has sold the required percentage of presale units in the building by a certain date, the lenders will release the funds to allow construction to begin.
The vast majority of new market housing in British Columbia is pre-sold rather than sold completed. Certain developers like Aragon Properties do not presell all of their units, but this quite rare.
What are the Presale Condo Buyer Protection Rules in BC?
There are many rules and laws on the purchase of new homes in British Columbia that are beyond the scope of this article. For this article we will outline the three main points that will be most noticed presale buyers in BC according to REDMA below:
Seven Day Rescission Period – Kill the Deal Within 7 days – No Penalties
This is referred to as the 7 Day Rescission Period. This rule allows a buyer of a presale condo in BC to walk away from a presale condo or new home purchase for up to seven days after getting an accepted offer on a presale. At the end of the 7 day rescission period, the contract becomes legally binding on the buyer unless the exercise their right of rescission in writing.
This 7 day time period is given to allow for the buyer to do their due diligence, including consulting with their lawyer, accountant, financial planner, mortgage broker as well as to review the disclosure statement. Please check out our article we have linked to above for more information on the seven day rescission period for presales.
Presale Condo Deposits are protected and will be returned if a presale project is cancelled
When buying a presale condo in BC, there is a requirement to pay a deposit as part of the transaction. Fortunately in BC, presale condo deposits are protected. REDMA requires to hold deposits for presale condos in BC in a trust account. This money has to stay in the account until the project is either completed or cancelled. This money cannot be part of a developer or project bankruptcy.
Developers are Required to give presale condo buyers a Disclosure Statement
REDMA requires developers to give the buyers of their presale condos a disclosure statement when a buyer signs an offer to purchase. This disclosure statement is a long detailed document that has comprehensive information on the project, the developer, and when the project should be completed, and when the buyer gets their money back if the project is not completed among other things. This document is designed to allow a buyer make an informed decision on the purchase of a new home in BC.
Who Enforces Presale Rules in BC?
The British Columbia Financial Services Authority (BCFSA) regulates and enforces the rules and laws for real estate in BC and for presale condos and homes specifically. The legislation regulating presale condos in BC is called the Real Estate Development Marketing Act (REDMA) and is designed to protect buyers by allowing them to make informed decisions on the purchase of a new home.
What Does a Presale Condo Purchase Look Like in BC?
To make the presale condo tangible to potential buyers, developers and marketing companies present designs, floor plans, and artist impressions of the future property. Depending on the size of the project and marketing budgets, developers and marketing companies will often construct a presentation centre with a display suite to give buyers a clear and tangible picture of what to expect of the finished condos.
Boardroom Campaign for Presale Condos
Sometimes, developers and presale condo marketers may run what’s called a “boardroom campaign” were there is no display centre and the marketers have a room typically at a real estate brokerage with samples of materials and finishes of the presale project.
The Role of Display Centres in Buyer Decision-Making
For larger projects or projects with higher marketing budgets, there may be a purpose built presale condo display centre. Some presale display centres are as small as a commercial store front or as large as a purpose built structure specific to the project that may be up to 10,000 square feet plus.
These display centres (see above) may have mock ups of what you can expect of the finished condos with larger projects having several suites on display with the various colour schemes available.
Typically buyers visit the display centre as part of their decision making process on which project to go with. At the display centre, the sales staff will give a presentation on the merits of the project and give the prospective buyer a preview package with details on the project as well as floor plan and pricing.
We can make this process easier for buyers. By working with us, we can make this process far more time efficient by getting you floor plans, pricing, and preview packages, and have a discussion of the merits or disadvantages of the projects before visiting the display centre.
Not Local? We can help
Also for buyers who are not able to visit the display centre or not in British Columbia, we can also help by forwarding the information as well as handle purchases for remote buyers. Please do keep in mind, there unfortunately is both a foreign buyers ban in place in Canada as well as BC’s 20% Foreign Buyer Tax.
Writing an Offer on a Presale Condo in BC
Presale condo offers are prepared by the developer’s lawyers and not by the buyers agent as is the case with existing properties. These offers are quite advantageous to the developer in the event of a dispute. These offers have blanks that will be filled in by the developers marketing team with input from the buyer and their Realtor. Once the offer is prepared, the buyer will sign it and then wait for the developer to sign the offer to get an accepted offer or send back a counter offer. More on that on our article on negotiating on the purchase of a presale condo.
Upon deciding to write an offer on a presale condo in BC, buyers are presented with a disclosure statement by the developer. As mentioned above, this part of the process to allow presale condo buyers buyers to make an informed decision on a purchase.
How Much Are Presale Condo Deposits?
Presale condo deposits are typically anywhere from 10% to 30% total with most around 25% paid over 12 to 24 months. The amount of the deposit is usually dictated by either the developers financing, buyers residency (non-residents often have to pay higher deposits), or how soon the project is completing, or how stiff the local presale competition is.
The first deposit is typically either $5000 or $10,000 with an accepted offer and then 5% or 10% within 7 days of the accepted offer (minus the $5000 or $10,000 paid with the accepted offer). Some developers will require the full 5% or 10% with the accepted offer.
The subsequent presale deposits are paid in installments of around 5% to 10% until completion. Sometimes developers will ask for a 1-2% deposit right before completion of the building.
Accepted offer on a presale condo
Once there is an accepted offer, the 7 rescission period begins and the buyer should begin their due diligence. At the end of this 7 day rescission period, if the presale condo buyer does not rescind, the purchase contract will legally binding on the buyer. At this point the buyer just has to pay their deposits when they are supposed to and wait for the presale condo to be completed. During this time the buyer may receive correspondence from the developer about amendments to the disclosure statement and construction updates.
Other Documents When Buying a Presale Condo
Presale condo buyers in British Columbia will also have fill out the following documents when writing an offer on a presale condo:
FINTRAC – This document is to identify the presale buyer and/or the company they are using to purchase a presale condo in BC. This is a required document and if it is not filled out, could result in criminal penalties.
Disclosure of Interest in Trade (DORTS) – This document lays out the agency relationship between the Realtor and the presale condo buyer in detail. It is optional for the buyer to sign it, but the Realtor is obligates to present it to the buyer and explain it.
Privacy and Consent Form – This document explains the Realtors obligations and requirements to maintain the privacy of the presale condo buyer and their personal information.
When are Presale Condo Deposits Payable?
Once a presale condo buyer has an accepted offer, the initial deposit is payable. This is usually 5% or 10% depending on the project. The next deposit is typically 3 to 6 months after an accepted offer and the remaining deposit is payable 6 to 9 months after that. Often when second or third presale deposits are payable is subject to when the developer gets the building permit for the development.
Developers Increase Presale Condo Prices
Once the developer has sold the specific number or percentage of presale condos required by their lenders for the release of construction funds, the pressure to sell units decreases. As a result, developers often increase the prices of their presales.
Benefits of Early Presale Condo Purchases
Getting in early to buy a presale condo can often result in buyers getting a better price, more upgrade options, or other incentives that later buyers may not get access to.
We at Vancouver New Condos work closely with developers and marketing companies and can get this early access pricing, incentives, and other upgrades. Please contact us on the number above or sign up on our VIP presale condo email list to get more information.
Presale Cancelled? Deposits Held in Trust Returned
If the developer is not able to sell enough presales by a certain date, the project may not get financing and may get cancelled. The good news is that buyer deposits are protected and held in trust as per section 18 of the Real Estate Development Marketing Act (REDMA). If a project does not go forward, presale condo purchasers who have bought before the cancellation get their deposits back.
Pro Tips for a Presale Condo Purchase in BC
Here are Vancouver New Condo’s top pro tips when buying a presale condo in BC:
- Join Our Presale Condo Email List – This will provide you with information on new presale condos across BC before anywhere else. We send out 1-2 emails per week about new presale condo projects, as well as monthly real estate board statistics as soon as they become available. We maintain email lists for all the major presale markets in BC, including Greater Vancouver, The Fraser Valley, Victoria, Nanaimo, and Kelowna/the Okanagan. You can sign up for our email list here.
- Get Preapproved First – Getting preapproved for a mortgage is the best way to know how much you can spend on a presale. Let the lender know you want to buy a presale and they will give you the best advice on how to finance the purchase and avoid any unpleasant financial pitfalls. Getting preapproved can also help with the next point.
- Consult an Accountant if you’re an Investor – Buying presale condos as an investor can be very rewarding, but with those rewards come the inevitable taxes. Consulting with a qualified accountant who understands presales and real estate taxation to discuss what you plan to do is an important first step when buying a presale to help avoid any nasty surprises in terms of taxation.
- Confirm where you want to buy a presale condo – Knowing how much you can spend can make it easier to focus on where you want to buy as certain areas may be affordable and some may not. The answer to where to buy a presale condo can be answered much quicker by the doing the next thing on this list.
- Hire a Pro – Hiring a qualified and experienced presale Realtor will save you money (we know about all the incentives the public may not hear about), time (We have presale pricing for various areas and know about new projects first), as well as hassle (we get pricing & floor plans first). Vancouver New Condo’s have presale specialist Realtors in all the major presale condo markets in BC. We are always welcoming new clients, so please feel free to call the number above or have a pro reach out by clicking the yellow button labelled “New Condo Alerts” above for.
- Read Everything – When buying a presale condo in BC, buyers are given a large amount of documents. It is important that the buyer reads all of these documents and understands them. The first reason is this the best way for a buyer to make an informed decision, but also reading the documents allows the buyers to avoid nasty surprises as the project progresses. You can also have a lawyer read and give advice on the documents received.
- Sweat the Details – Take the time to ask any and all questions you may have both before and after you get an accepted offer on a presale. Do focus on details and question everything. This is the time to make changes if needed. Once you have an accepted offer, the clock begins ticking on the 7 day rescission period. Once the 7 days are up, it is much more difficult for buyers to make changes to the contract or anything else with the presale purchase.
What are the Benefits of Buying a Presale Condo?
Buying a presale condo has many benefits including:
- Todays Price Locked in – In a rising real estate market, presales can allow buyers to lock in todays pricing for a property that will be delivered in future when prices are higher. Do keep in mind that real estate markets can go both ways.
- Presales do not require a mortgage to purchase – When buying a presale in BC, it is strongly advised for purchasers to get a mortgage prequalification when purchasing. That said, a mortgage prequalification is not required when buying a presale.
- Credit score not impacted by a Presale Purchase – Presale condo purchases are not reflected on the buyers credit score until completion of the property. This may be may be powerful for investors who are holding other investments or properties with mortgages or other loans.
- Newness – Some people absolutely love living in a brand new property that nobody else has lived in.
- Less hassle than existing properties – The newness and the fact that you can expect to get a perfect property means there are far less hassles in terms of repairs, maintenance, mechanical failures and other common issues with existing and older condos.
- Popular with tenants – Tenants like owners appreciate the same benefits above and are keener to rent such properties and are often willing to pay higher rent for newer.
- You get to choose what you want – In most cases, a buyer is able to choose exactly the suite they want in a presale condo development. This is distinct from shopping for existing properties, were a buyer can only buy what is for sale.
- Potential for Customization – Some presale projects, particularly high end or more expensive luxury developments may allow presale buyers to customize floor plans, appliances, finishings, and more.
- Possibility of Extra Parking – Less common in the Vancouver area, but often when buying a presale it may be possible to purchase several parking stalls.
- Avoid Depreciation – When buying a presale you are buying the right to receive a new finished property anywhere from 1-5 years from the time of purchase. During that time, you have money invested in an asset the real estate market that is not deteriorating or depreciating because it is not yet built.
- No Tenants, Property Tax, Mortgage Payments Until Completion – Related to the point above, during the time of construction, the owner of a presale has none of the hassles or costs above but is invested in the real estate market.
What are the Risks and Considerations in Buying a Presale Condo in BC?
Despite its benefits, buying a presale condo in British Columbia has potential risks. These include but are not limited to:
- Construction delays – If the project is delayed beyond the project end date or “drop dead date” in the contract the project may be cancelled and deposits returned with no interest to the buyer. Aside from the drop dead date, buyers have no real control over when a project completes. This can usually be avoided by buying presale condos from reputable and established developers.
- GST is payable on new homes in British Columbia – Federal Goods and Services Tax is of 5% is payable on new homes in BC, unlike existing properties.
- Presales tend to be more expensive than existing properties in BC – New is always more expensive and this includes properties and condos.
- Changes to the agreed-upon floor plans – Due to unforeseen circumstances there may be changes floor plans. This can usually be avoided by buying presale condos from reputable and established developers.
- developer’s bankruptcy.
- Finished product not
- Real estate market fluctuations – Risk is inherent in real estate purchases and the market is always changing. The BC real estate market has been rising, but does not always rise and when prices fall, buyers are still legally required to complete on a presale purchase.
- Getting a mortgage on a presale condo is not guaranteed – Most banks will not give a mortgage preapproval on a presale at the time of purchase. Lenders may give a probability of granting a mortgage on the completed condo. Some lenders will offer a long term preapproval for a mortgage on a presale condo, but this is not common. These long term presale mortgage preapprovals typically have an interest rate 2-3% above the current interest rates at the time of signing the contract. To avoid this situation, always consult with a mortgage professional and your Realtor before buying a presale condo.
What is a Presale Condo in BC -FAQ’s
- Can you sell a presale contract if your circumstances change or you’re unhappy with the developer? – We can sell the the presale with an assignment of contract, but that is subject to developer permission in writing and market conditions among other things.
- Is interest paid on your presale deposit in the event of default by the developer – Typically not.
- Does any interest accrue on your presale deposit is credited to your balance owing upon completion – Typically not
- Why are mortgages difficult to get on a presale and are at a higher interest rate (maybe because there is no collateral because it’s not been built yet but presumably purchasers can borrow against other assets?) – Exactly. A presale is a promise to pay in full upon completion in exchange for a completed condo. There is a level of uncertainty here that some lenders shy away from. That said, like I mentioned in the article, we can get a presale pre approval at a higher rate and then if rates are lower at completion, you can get a mortgage elsewhere with better terms and rates. People who got these presale pre approvals last year and completing now are often getting rates dramatically below current prevailing rates. A presale pre approval is cheap insurance (its basically free) to ensure you get a mortgage.
- Is the strata fee set at the time you enter into the presale contract? Do strata fees generally increase upon completion? The presale Disclosure Statement has a chart laying out the strata fees. These fees tend to be conservative and accurate post completion because of regulations to this effect. This is because there were problems in the past with developers quoting unrealistically low strata fees to get a marketing advantage only to see fees skyrocket after completion. You may see fees go up marginally.
- If strata by laws are not formed until completion, is it possible that you end up buying a place with restrictive by laws (ie. no short term rentals, pets, etc)? – All presales come with the standard Strata Property Act Bylaws. (kinda like your Iphone comes with standard IOS) and then once a strata is formed, they will change the bylaws as per their preferences. You may see some projects particularly in the Okanagan presales or Victoria presales that come with bylaws/rules allowing short term rentals/Airbnb, but this is rare.
- Who pays property taxes up until completion? The Developer.
- What is average time for completion? Obviously it would depend on size of property and number of units, and many other variables (ie. developed, pandemic, labour) but are statistics on presales in BC available? 1.5-6/7 years based on project size complexity and building materials and location. A large concrete luxury tower with presales in Downtown Vancouver will take a very long time (up to 6-7 years) due to onerous regulation, glacially slow permitting, and building complexity. A wood frame building with presales in Kelowna may take 1.5-2 years due to lighter regulation, faster permitting, and simpler building processes.
Pros of Buying a Presale Condo in BC
- Price Lock-In: In a rising real estate market, presales can allow buyers to lock in today’s pricing for a property that will be delivered in the future when prices may be higher.
- No Immediate Mortgage Requirement: A mortgage prequalification is not required when buying a presale, although it is strongly advised.
- Newness: Some people love living in a brand new property that nobody else has lived in.
- Less Hassle: The newness and the fact that you can expect to get a perfect property means there are far fewer hassles in terms of repairs, maintenance, mechanical failures, and other common issues with existing and older condos.
- Choice: In most cases, a buyer is able to choose exactly the suite they want in a presale condo development.
- Potential for Customization: Some presale projects, particularly high-end or more expensive luxury developments, may allow presale buyers to customize floor plans, appliances, finishings, and more.
Cons of Buying a Presale Condo in BC
- Construction Delays: If the project is delayed beyond the project end date or “drop dead date” in the contract, the project may be cancelled and deposits returned with no interest to the buyer.
- GST on New Homes: Federal Goods and Services Tax of 5% is payable on new homes in BC, unlike existing properties.
- Potential Higher Cost: New is always more expensive and this includes properties and condos.
- Changes to Floor Plans: Due to unforeseen circumstances, there may be changes to floor plans.
- Real Estate Market Fluctuations: Risk is inherent in real estate purchases and the market is always changing. The BC real estate market has been rising, but does not always rise and when prices fall, buyers are still legally required to complete on a presale purchase.
- Mortgage Uncertainty: Most banks will not give a mortgage preapproval on a presale at the time of purchase. Lenders may give a probability of granting a mortgage on the completed condo. Some lenders will offer a long-term presale mortgage preapproval, but this is not common.
When to Consult with a Lawyer as Needed?
When buying a presale condo in British Columbia like all real estate transactions, you can always check in with a lawyers and other legal professionals should you have any questions your Realtor cannot answer. It is standard practice to have a lawyer read and review the documents received when buying a presale.
A good lawyer can help you better understand the contract’s terms, explain the developer’s disclosure statement, and guide you through any legal issues that may arise during the purchase process.
Presale condos offer a unique opportunity for buyers to purchase and/or invest in a property before its construction is completed. While this comes with its own set of benefits, such as the ability to customize the unit and choose exactly the suite wanted, it also carries certain risks, including construction delays and market fluctuations. Therefore, it is crucial for potential buyers to conduct thorough research and consult with professionals before making a decision. As the market for presale condos continues to grow in British Columbia, understanding the ins and outs of these transactions becomes increasingly important for buyers and investors alike.