What is a Presale?

What is a Presale?

Updated by Mike Stewart Realtor on January 8, 2025.

A presale is a contract where the buyer agrees to purchase a property that is not yet built.

Typically associated with condos, presales allow developers to sell units before breaking ground.

Buyers pay an initial deposit, usually spread across several installments, and complete the full payment upon the project’s completion.

This deposit usually ranges from 5 to 10% of the purchase price at the time you buy, with another 10 to 15% paid in installments over the course of construction.

The developer does not gain access to this deposit money, which is held in a trust account, until completion. If the developer does not follow through with the construction project, the full deposit will be returned to the buyer.

Some developers also offer presale opportunities for townhomes and single-family homes.

Presales differ from resales in that they involve properties still under development, whereas resales pertain to properties that have already been constructed.

Why buy a Presale?

Presales offer several advantages:

• Price Appreciation: Vancouver’s real estate market is known for its upward trajectory. Purchasing a presale property often means benefiting from market appreciation during the construction period.
• Flexibility: Buyers have the opportunity to customize certain features, such as finishes and layouts.
• Extended Payment Terms: With deposits spread over time, buyers can manage their finances more flexibly.
• First Choice of Units: Buyers can often select preferred units, including the most desirable locations within a development.
• Reduced Competition: Since presales are secured early, buyers avoid the bidding wars often associated with completed properties in a hot market.
• Potential Rental Income: Investors can benefit from securing a property that may generate rental income upon completion, often at favorable rates compared to purchasing completed homes later.

However, presales come with risks, including potential construction delays, fluctuating interest rates, and market downturns. It’s essential to evaluate these factors carefully before committing to a presale.

How Do Presales Work?

Begin by exploring projects that align with your financial goals and personal preferences. Evaluate the developer’s reputation through online reviews, past projects, and industry recognition. Additionally, consider the location, proximity to amenities, and anticipated completion timeline to ensure the development fits your long-term needs.

2. Review the Contract: Developers provide a disclosure statement outlining the terms of the agreement, project details, and any associated risks. It is advisable to have a lawyer review this document to ensure you understand all clauses. Pay close attention to clauses about delays, presale assignment rights, and refund conditions.
3. Pay the Deposit: Most developers require 15-25% of the purchase price as a deposit, paid in stages. Deposit structures can vary, with some offering lower initial payments to attract buyers. Understand how deposits are protected under provincial laws, such as holding them in trust accounts.
4. Monitor the Construction: Stay informed about the project’s progress and any potential delays or changes to the development plan. Developers often provide updates via newsletters or buyer portals.
5. Take Possession: Once construction is complete, the buyer takes possession of the property and pays the balance of the purchase price. This phase includes a walk-through inspection to address any deficiencies.

For more detail on the process of buying a new build home, please check out our guide on How to Buy a Presale Condo in BC.

Key Considerations

• Cooling-Off Period: In British Columbia, buyers have a seven-day rescission period to withdraw from a presale agreement without penalties. This allows buyers to thoroughly review the contract and seek legal advice.
• GST: Presale purchases are subject to Goods and Services Tax (GST), which is 5% of the purchase price. This is in addition to the purchase price and closing costs. There are some exemptions, such as projects built on leased indigenous land.
• PTT: Property Transfer Tax is payable on presale purchases. There are some exemptions, such as projects built on leased indigenous land.
• Financing: Securing financing is very important, especially if the market fluctuates during the construction period. Many pre-approvals are often valid for only 90-120 days, so buyers must plan accordingly. Work with lenders familiar with presale financing to avoid surprises. Also, get in touch with us as we have access to mortgage specialists who may be able to offer presale mortgage preapprovals.
• Assignment Clauses: Many developers allow buyers to assign their presale contracts to another party before completion, but restrictions and fees may apply. Review the contract carefully to understand your options. Presale assignments can be a useful exit strategy for investors.
• Additional Costs: Buyers should consider other costs such as strata fees, property transfer taxes, and potential increases in development levies. Understanding these financial obligations early can prevent surprises. For example, amenities such as gyms and pools may lead to higher ongoing strata fees.
• Completion Risks: Market conditions, interest rates, or personal circumstances may change before completion. Buyers should plan for flexibility and ensure their finances can accommodate such changes.

What are the advantages of pre-sale properties for investors?

Presales offer many advantages for investors. Below we outline six attractive features of the presale market.

1. Leverage

You often can secure the purchase of a presale for as little as a deposit of 5 to 10%. Should the property increase in value before completion, you could see a significant return for very little money actually invested. For example: you decide to buy a $300,000 condo home with a planned completion date for 5 years in the future. To secure the property, you make a 10% deposit of $30,000. Due to an increase in the real estate market, your condo is worth $360,000 2 years later and you decide to sell the property (this is known as selling the assignment of contract). You walk away with your $30,000 deposit along with the value-added to the property – that is, 60,000 or a 200% return on your initial investment.

Now say you decide to hold on to that same property and the price remains constant until your completion date. The property is still valued at $360,000 when you go to your broker to see about acquiring a mortgage. Because you have more than 20% in equity ($60,000 + $30,000 = $90,000 or 33.3% of your $270,000 mortgage) you can avoid costly CMHC high ratio insurance premiums that are required for properties purchased with less than a 20% down payment. In this case, you managed to have a 33.3% down deposit on your mortgage with only putting 10% down initially.

2. Low Hassle Investing

Presale properties follow real estate market trends, with prices rising and falling just as the existing property does. The difference between holding a presale and an existing property lies in the fact that an investor can benefit from the potential capital appreciation without the worry of tenants, the cost of property taxes, and the monthly maintenance fees.

3. Low Cost of Ownership

New condos built by reputable developers will usually not require costly repairs or maintenance on the part of an owner/investor for a considerable period after completion. The same cannot always be said for older buildings.

4. Warranty Protection

All presale construction receives BC’s 2-5-10 Year Home Warranty Insurance. This warranty does not begin until the building is complete and, in most cases, assures the investor low costs and low hassles for the duration of the warranty.

5. Newly Built = Popular with Tenants

Newer buildings are usually very popular with tenants for fairly obvious reasons — modern design, new fixtures, and appliances; no need for repairs or troublesome and costly maintenance; and the conveniences that come with many newer buildings, such as swimming pools, workout centres, saunas, hot tubs, concierge, etc.

6. Newly Built and Popular = Higher Rent

Very often tenants are willing to pay a premium to rent a recently constructed suite over an older unit for the reasons detailed above.

Presale Condo FAQ

What is a presale condo in Vancouver?

A presale condo is a unit sold before its construction is completed, allowing buyers to invest in property development early. This often comes with benefits such as input on finishes and potential market value increases before completion.

How does the deposit structure work for a presale condo?

The deposit for a presale condo typically ranges between 5-20% of the purchase price, paid in installments. This deposit secures your purchase and is held in a trust account until completion.

What are the benefits of buying a presale condo?

Buyers can enjoy newer properties with modern amenities, the potential for customization, and possibly significant appreciation in property value by the time the development is completed.

Can I sell my presale contract before completion?

Yes, selling a presale contract, known as an assignment, is possible. However, it’s subject to developer approval and may be governed by specific rules, including taxes and fees.

Are there any risks involved in buying a presale condo?

While presale condos can be lucrative investments, there are risks such as construction delays, changes in market conditions, or differences in the final product from the initial plans.

What legal protections do buyers have with presale condos in Vancouver?

The Real Estate Development Marketing Act (REDMA) offers protections, including a 7-day rescission period, ensuring that deposits are protected and outlining requirements for disclosure statements from developers.

How can I finance a presale condo purchase?

Financing a presale condo typically involves securing a mortgage approval closer to the completion date. Initially, buyers are required to pay a deposit, not the full mortgage.

What should I look for in a presale contract?

Important details include completion dates, deposit structure, warranties, assignment rights, and any conditions that allow for changes in finishes or construction details.

How do GST and property taxes apply to presale condos?

GST applies to new properties, including presale condos, and buyers may be eligible for rebates depending on the purchase price. Property taxes become applicable once you take possession.

What happens if the developer fails to complete the project?

In such cases, deposits are protected and must be returned to buyers. Additionally, developers are often required to have insurance or other guarantees in place to protect buyers’ investments.

How do pre-sales work?

Pre-sales work by allowing buyers to reserve a property in a new development before construction is finished. Typically, buyers sign a purchase agreement and pay a deposit, which is often structured in installments.

What are the benefits of buying pre-sales in Vancouver?

Buying pre-sales offers several advantages:

• Price Lock-in: Secure today’s price in a market where real estate values may increase.
• Customization: Many developers allow buyers to choose finishes or upgrades.
• Presale Real Estate Value: The property’s value can appreciate significantly by the time construction is complete.

What should I know about pre-sales in Vancouver real estate?

When purchasing a pre-sale property, it’s essential to understand:

• Deposit Requirements: These deposits typically range from 5% to 20% of the purchase price.
• Completion Timeline: Construction can take several years, so patience is key.
• Developer Reputation: Research the developer to ensure they deliver quality homes on schedule.

Why are pre-sales popular in Vancouver?

Vancouver’s competitive real estate market makes pre-sales an attractive option for both investors and first-time buyers. Pre-sales often provide lower initial financial barriers, such as staggered deposits, making them accessible to a broader range of buyers.

How does a pre-sale differ from a resale property?

A pre-sale refers to a property that has not been built yet, while a resale property is one that is already constructed and occupied. Pre-sales allow buyers to invest in future real estate at today’s prices, whereas resale properties involve immediate ownership and occupancy.

Looking for Vancouver Presales?

Check out my list of Vancouver Presale Condos if you’re interested in buying on one of these real estate investments.