Note: This story was updated on Dec. 22 to reflect new information from a local homebuilding company.
Take a drive around Squamish and you’ll notice plenty of new homes under construction. On top of the new construction, you’ll see other District of Squamish notice signs, some of which reflect more housing under consideration.
Some new builds are purchased by pre-sale, where a prospective homeowner signs a deal with a development company before the home is constructed.
With more of these types of offers available, The Squamish Chief consulted industry experts about the pros and cons of buying pre-sales.
Pros of buying pre-sale
One of the more apparent advantages of pre-sales is the time involved.
“You have this time to put your down payment together,” said the managing broker at Royal LePage Black Tusk Realty, Lisa Bjornson.
As an example, Bjornson said you might qualify today to purchase a property at a certain price, but a couple of years down the road your earning power may be higher.
“So having that time spread … for lots of people can be advantageous,” she said.
Mark McGrath, a local financial planner and associate portfolio manager with PWL Capital, added during that time between signing the deal with a development company and the home being constructed, the down payments come in intervals.
“The payments, like the down payments, are staged or staggered over time,” said McGrath.
When he purchased a pre-sale unit, for example, he had a total down payment of 15% yet it came in three separate increments of 5%.
He also said you don’t need financing from a bank until the home is near completion. With interest rates currently high, as the Bank of Canada has held to 5.0% since mid-2023, Bjornson said this may be a bonus if the rates lower in the future although that is no guarantee.
Furthermore, with pre-sales, buyers are locking in the price at the current market rates.
Historically, Bjornson said, “Real estate goes up on average by about 5% annually.”
Meaning, the potential is there that the home, when finished, may be worth more than what you purchased it for.
Cameron Cope, the owner of the Squamish-based homebuilding company ReGen Homes, wrote to The Squamish Chief and said that locking in the purchase price is a “primary advantage” of buying a pre-sale.
“It allows you to lock in the purchase price, which can be especially valuable when prices go up,” he said. “When the market is hot, or for highly sought after buildings, pre-sales may be your best chance to make a purchase.”
Bjornson said another positive component about pre-sales is that they are new, so sometimes there is less maintenance, which may be attractive to some buyers. They can also be helpful for those who are in a stable living situation but will be looking to downsize in the coming years, as it takes some time for the homes to be completed fully.
Cons of buying pre-sales
With any decision, there are risks involved.
One of the cons of pre-sales is that there can be delays in the completion of the builds.
“A developer will also have built into their contract natural date extensions for things they can’t control,” Bjornson said. “While they’re going to try to make those dates, some flexibility could be required.”
The homes can be different than what you signed up for as well, which is largely in the control of the developer.
“The developer may have to make an adjustment to the product for various reasons. If it's not a substantial change, the developer is not required to notify you,” said Bjornson, adding changes would likely be on the cosmetic side.
“They can change the colour, they can change the type of siding,” said McGrath. “What you're seeing in the rendering is the best possible image that they could show you.”
“The disadvantage for some is that you are buying off plans, and so don’t get to experience the home in person before you make the decision,” said Cope.
Cope said pre-sales occur during development when plans aren’t necessarily construction-ready, so “items may come up that require changes to be made.” In the last few years, he said, some building materials had long lead times or were unavailable.
“In these cases builders have to adjust the product so the construction can continue on schedule,” he said.
And, on the flip side of a home potentially being worth more than what you purchased it for, the value can depreciate, leading to a snowball effect financially.
“Your ability to actually afford this mortgage [could] be very severely impacted,” said McGrath.
McGrath also said there is goods and services tax (GST), so buyers will be paying more than the listing price. McGrath said, for example, a $1 million home would have an extra $50,000 based on 5% GST.
McGrath said there are rebates for GST in B.C. for purchasing a pre-sale as your primary home, but they are not available for homes that cost over $450,000.
Lastly, if you have a sudden change in your world that leads you to want to get out of the contract, Bjornson said it can be really tough to assign your purchase contract to someone else. Additionally, that would need to be agreed to by the developer.
McGrath said in this scenario, you’ll have to do the leg work or hire a realtor to help you too.
Bjornson said she has seen some concessions made by developers for individuals in “very extreme circumstances.” And, if you assign your purchase contract to someone else for a higher amount, then McGrath said that will count as a capital gain for your taxes.
Buying pre-sales has ‘upside,’ but need to remember ‘hiccups happen’
When weighing both the pros and cons of pre-sales, Bjornson believes there could be an upside, but people need to be aware of the realities.
“Depending on you and your situation, I believe there's more of an upside at the end of the day, but you need to be cognizant that hiccups happen,” she said.
Cope said that the changes that may happen could be concerning to some buyers, so consider who you are buying from.
“If you are buying from a good builder, they want their purchasers to be happy with their product,” he said.
Both Bjornson and McGrath said stable financial planning is important.
“Before you get into this, you want to make sure that your own financial plan is very solid,” McGrath said.
Furthermore, McGrath said it is best to get a contract looked over by a real estate lawyer or notary with a lot of experience with these types of contracts before you sign it.
The Squamish Chief reached out to the Urban Development Institute for comment on this story, but the institute has not responded.
