Presales offered by developers are most commonly seen in strata townhomes and condos and refer to the sale of a residential unit before construction is completed.
Typical contracts offer a fixed price held for an agreed-upon timeframe to build to completion, and require a deposit paid to hold the sale.
Deposits are handled in 2 distinct ways:
1. Funds are held in trust by a lawyer, notary public, or real estate brokerage until final completion of sale;
2. Funds are paid directly to the developer if the company has deposit protection insurance.
Deposits to presale buyers are repaid if the homes are not built, and the contract is subsequently cancelled.
Considering a presale purchase? Talk to the professionals before signing on the dotted line.
A Realtor can provide consultation on the terms and conditions of a presale contract. Realtors can cut through the jargon and explain terms and practices, and also provide additional information about all properties available for purchase in specific price ranges.
A lawyer can provide consultation on a contract’s legalese, and make sure buyers understand both their rights and their obligations related to the sale. Legal counsel can advise on a buyer’s responsibilities including termination or extension rights, as required by the contract.
All potential presale buyers should review the Disclosure Statement – and if required, consult with a Realtor to ensure understanding. By law, a developer can’t sign a contract with a buyer unless this statement has been provided, and the buyer given a reasonable time period to read it.
Presale purchases don’t function the same as buying an existing home, and it’s important that buyers understand and can tolerate the associated risks.
The results of a delay past contract completion date will vary according to the presale contract:
Buyer and developer must both agree to an extension, or the contract is cancelled
Buyer may be required to agree to a new (higher) price to extend the contract or enter into a new contract
Developer may sell to another buyer
Buyers must be familiar with their contracts and Disclosure Statements and consult with their Realtor and lawyer to understand any points that are less than clear.
Presale buyers can minimize risks by:
Obtaining a contract extension before the original contract’s termination date (in the case of delay)
Wait to sell current home until the new home’s completion is nearing
Plan for scenario B, C or even D in terms of temporary housing, closing costs, storage of belongings, etc.