When considering purchasing a home, buyers have three options to choose from: pre-sale, newly-built, or resale markets. The purchase price is dependent on the property's condition and the timing of the purchase. In this article, we will explore the pros and cons of pre-sale and resale properties to help you determine which option is best suited to your needs and goals.

Understanding Pre-Sale Properties

A pre-sale purchase is when a buyer purchases a property before it is constructed or finished. These purchases can occur up to five years before delivery and often come with a discount compared to newly-built properties. Buyers should consider the fact that pre-sale properties are unfinished products, and the quality, design, and actual specifications may differ from the initial marketing materials. However, pre-sale properties offer buyers the freedom to customize their future home. Financing for pre-sale purchases often involves a 10-15% down payment, with the mortgage only provided upon the property's completion. Buyers should consider potential economic conditions and market trends when making a pre-sale purchase.

Academic Insight into Pre-Sale Purchases

UBC's Professor Thomas Davidoff notes that pre-sale prices are derived from opposing forces. While buyers may expect lower prices due to the risk involved, developers price the properties based on what the market will look like upon project completion. Historically, real estate values have consistently increased, which is factored into pre-sale property valuations. If an established developer is associated with the project, lower risk premiums may be expected given their reputation and market portfolio.

Understanding Resale Properties

Resale properties involve buying a home from an owner rather than a developer. These properties are finished products, and buyers have a clear understanding of what they are getting into. Resale properties offer less freedom for customization, and renovations may be costly. Additionally, older homes may not be as energy efficient as newly-built properties, increasing the cost of operations. However, the resale market offers a wider range of prices, and buyers have more data available to make informed decisions.

Financing for a resale property involves a down payment and a mortgage that can be arranged before signing the purchase agreement. The resale market has a wider array of properties, offering greater choice for buyers.

Current Economic Conditions

Inflation in Canada has skyrocketed, leading to an average mortgage rate of around 4.5%. Buyers should consider their market expectations and the current economic climate when choosing between pre-sale and resale properties. Pre-sale properties offer buyers the opportunity to take advantage of value appreciation and potentially save money with a lower mortgage interest rate upon completion. However, if the interest rate increases, the opposite may occur. Resale properties offer a great opportunity to buy at a cheaper relative price, as the demand for homes is lower and prices have dropped.

Choosing between pre-sale and resale properties requires careful consideration of individual circumstances, market trends, and economic conditions. Pre-sale properties offer the potential for value appreciation, customization, and time to arrange financing. However, buyers should be prepared for potential risks involved in purchasing an unfinished product. Resale properties offer finished products, greater choice, and more available data for buyers. However, renovations and higher operating costs may be involved, and market trends must be considered when making a purchase.