When buying real estate, it’s important to understand the potential pros and cons, whether resale or pre-construction.
The perks of buying pre-construction are apparent. There’s no question that something is appealing about the fresh slate of being the first owner and not having to deal with other people’s mistakes, messes, and ugly finishes. It’s a brand-new house or condo with modern amenities, low-maintenance, updated floorplans, and everything is under warranty –although, we’ll argue that any house can be personalized into the perfect home.
Over the last several years, there have been numerous cases where buyers of pre-construction homes were left scrambling as values plummeted.
For one thing, the adjustment in market value meant many pre-construction homebuyers could not sell their existing home for as much as they had anticipated and couldn’t afford to close on their new house. The real estate market does the same as the stock market increases. You take the risk of gaining or losing money.
According to WOWA, as of February 16, 2023, the average home price in Canada has decreased by 18% in the last 12 months, with the national average home price at a 2-year low.
Resale VS. Pre-Construction Real Estate
Regardless of what the market is like when you buy your pre-construction home, you’re taking on the risk that when you close, a year or two years down the road, the market may not be the same as it was when you bought or what you were counting on. When buying resale real estate, you’re buying and selling in the same market, reducing your exposure and risk.
Fluctuating Interest Rates
Rate hikes can also wreak havoc with your budget, as we’ve seen over the past year. Seven lending rate hikes in 2022 left some pre-construction buyers counting on 2% interest rates in the precarious position of being unable to secure a mortgage. Those unable to cover the mortgage at closing risk losing their deposit and could face further legal action from the developer.
Another risk of buying pre-construction is completion date deferments. During Covid, unhappy homebuyers were facing move-in delays due to the global supply chain crisis.
The good news is that if you’re buying a home for the long term, real estate will appreciate it, minimizing risk in the long run. But an even better way to reduce the risk is to buy an existing property because you can buy and sell your home in the same market and close within two to three months with peace of mind knowing that your money is well spent.
Research the Developer
Google the developer. However, take reviews with a grain of salt. This is one industry where disgruntled clients will post reviews more often than happy ones –and the disgruntled ones are often really disgruntled! Look for things such as lawsuits and cancelled or delayed developments. Big events like this can be an indication to stay away.
For more information about buying a home, contact 1 (800) 617-0090 or hit us up on social