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Initial Deposit

Picture this: You’ve just discovered a pre-construction condo that seems like it was built with you in mind. You’re already dreaming of morning coffees on the balcony and cozy movie nights in the living room. While homeownership may be strong, pump the brakes for a moment. Let’s demystify one of the lesser-known but highly critical aspects of buying a pre-construction condo: the deposit structure. Knowing how the deposit structure works is really important. It helps you plan your money for what’s probably one of the biggest buys you’ll ever make.

What is a Pre-Construction Deposit Structure?

In a pre-construction condo purchase, the buyer is generally required to pay the developer a deposit, which typically ranges from 5% to 20% of the final purchase price. The actual percentage often depends on various factors, such as the developer’s policies, the demand for the property, and sometimes even the phase of construction. Unlike traditional real estate transactions in Canada where the down payment is often uniform, pre-construction deposits can vary widely.

The process usually begins with an initial deposit made on the day you either visit the builder’s office or decide to book a unit. This initial deposit is not just a financial formality; it serves two very important roles in the transaction.

Firstly, the deposit acts as a formal declaration of your intent to purchase the unit. By putting down this sum, you’re essentially reserving the condo and preventing the developer from offering it to other potential buyers. It’s a clear indication that you’re committed to proceeding with the purchase.

Secondly, this deposit is not an additional or separate cost. It’s actually a part of the total amount you will eventually pay for the condo. Think of it as a portion of the payment made in advance, which then gets subtracted from the final purchase price of the property.

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How do deposits work in the resale sector?

To fully grasp the uniqueness of pre-construction deposit structures, it’s useful to compare them with standard practices in the resale market. In a traditional real estate purchase, a down payment—often around 20% of the property’s value—is made as a lump-sum payment. If you are a first-time home buyer, you pay 5% on the first $500,000, 10% until $1 million, and for the remaining amount, you have to pay 20% as down payment. 

What are the advantages of extended deposit structures in pre-construction? ​

What makes pre-construction condos stand out in the real estate market is the flexibility offered by extended deposit structures. Unlike traditional property purchases that often necessitate a large upfront down payment, pre-construction condos allow buyers to spread their deposit over an extended time frame. You aren’t required to get pre-approved for a mortgage right away either. You can continue paying the deposit structure until it is time to move in or occupy the unit. 

Sometimes, these subsequent payments are linked to construction milestones, adding an extra layer of assurance that the project is progressing as planned. Some developers offer even more flexible plans, tailoring deposit structures to suit various financial situations. This could mean smaller but more frequent payments, for example.

  • Ease of Financial Planning: Spreading out the deposit over time makes it easier to manage your finances. You can continue to save, invest, or meet other financial obligations without being significantly hamstrung by a large, immediate outlay.
  • Increased Accessibility: The extended deposit structure makes it more feasible for a broader range of buyers to enter the property market, including those who might find it difficult to save up for a large lump sum quickly.
  • Risk Mitigation: Should you decide to back out of the purchase within specific timeframes or under certain conditions, having made smaller payments could reduce your financial exposure.
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Though approximately 5% of pre-construction condos in the Greater Toronto Area (GTA) are subject to cancellation, multiple safeguards are institutionalized to protect your deposit. We also have an in-depth blog on pre-construction safeguards, which is a must-read. Continue reading the pre-construction buying guide here