If you’re planning to buy a home for the first time, one of the choices you’ll have to make is whether to purchase a pre-construction house or a resale home. Notably, the demand for pre-construction homes in the GTA has increased steadily due to their countless benefits.
As you contemplate whether to purchase a pre-construction house or not, you must consider its advantages and drawbacks. It will help you make informed decisions regarding your home purchase. Keep reading to learn how new pre-construction homes work, including their pros and cons.
How to Buy a Pre-Construction House
Simply put, a pre-construction home is a house you buy before the building is complete. It can be either a condo, semi-detached house, detached house, or a townhouse. A house model will give you an insight into how the home will look like upon completion.
Before buying a pre-construction house, you need to perform intensive research to know whether the neighborhood will suit your family needs in the future. What if you plan to sell the home in the future, will the return on investment be low or high? Here are some of the things that will influence your decision.
- Types of amenities in the neighborhood
- Future development plans in the area
- The current and forecasted market value of the house
- Accessibility to and from big cities, like Toronto
- Builder’s reputation and level of experience
- Comparables in the same building and street
- Floor plan and price per square foot
Pros of Pre-Construction Detached Homes
Pre-construction homes for sale are becoming increasingly popular in the GTA due to their numerous benefits. Here are some of the advantages of pre-construction homes in places like Brampton and Kleinburg.
1. Customizable House Designs
With a pre-construction home, you can choose the type of interior and exterior finishes that match your lifestyle. Thankfully, there is a vast range of upgrades to consider. You won’t have to replace anything when the developer completes the house.
Some of the things to customize based on your preferences are the flooring materials, types of kitchen counters, electric appliances, and paint colors. It’s relatively affordable to perform these upgrades before construction than doing them after development.
2. Low Maintenance Fees
When buying a pre-construction house, you become the first person to live in the house. You’ll rest assured that all the appliances and equipment installed in the new building will last longer. So, you won’t spend much on house repairs and maintenance practices.
3. Brand New House
Nothing puts a smile on a homeowner’s face like being the first person to move into a pre-constructed house. You’ll be the first person to enjoy all the amenities in the home, unlike when you buy a pre-owned or resale home.
4. Offers Enough Time to Save
The deposits and down payments for pre-construction houses are highly flexible. You can pay the developer a series of installments as deposits, giving you more time to save funds for the entire home. The payments should align with the builder’s terms on deposits.
5. Guarantees Value
New pre-construction homes usually offer incredible value per square foot, making them more profitable than other investments. Their value tends to increase during construction, and you can resell them at a higher price when the house is complete.
6. Relatively Cheaper
Pre-construction houses come with numerous financial benefits that can help you save thousands of dollars on your house purchase. It gives you the chance to interact with the builder and negotiate for affordable prices. Resale homes tend to be a bit more expensive.
7. Less Bidding
Most builders usually inflate prices of resale homes based on market performance. If the rates increase, you’ll have to do much bidding to get a favorable deal. However, pre-construction homes usually have a pre-set market price, making it easier to budget for.
Cons of Pre-Construction Homes for Sale
Like any other investment, pre-construction homes also have a few drawbacks you should know before investing in them. Here are the downsides to a pre-construction house.
1. Construction Delays
Pre-construction homes take between three months and one year to complete. However, delays are inevitable, especially when investing in pre-construction condos. Builders may wait for other condo units to sell before building more units, and that may take more years.
2. Higher Deposits
While pre-construction houses tend to have flexible deposits, some developers may want you to pay deposits of as high as 10 to 20 percent when signing an agreement. That is, however, different from the five percent deposit upfront for resale houses.
3. Subject to HST
Unlike resale houses, pre-construction sales are subject to Harmonized Sales Tax (HST), increasing the home price. The good news is that you can qualify for an HST rebate if you live in the pre-construction condo rather than renting or selling it to prospective buyers.
4. High Condo Fees
While pre-construction condos tend to be relatively cheaper than other investments, their fees will most likely increase in the next two years by around 10 to 20 percent. It’s because the cost of running condos tends to rise with time. You should add these future increments to your budget to determine affordability.
5. Hidden Fees
When buying a pre-construction condo, you may pay an additional ‘occupancy fee’ during registration before legally owning the residential unit. Unfortunately, the fee doesn’t count in your mortgage payments. You may also pay more money for some upgrades.
6. Additional Costs
Buying a pre-construction home due to their low-cost may not be the right objective. What if you end up spending more money than what you expected? The quote you get from your builder may not be what you’ll spend on the pre-construction house. You may pay more for taxes and upgrades.
New pre-construction homes in the Greater Toronto Area have both pros and cons. You should determine if you can afford such homes despite their downsides. To get quality results from a pre-construction house, organize several meetings with the builder to discuss the budget and legalities of the entire project.