Glossary
Pre-sales
Also called: off-the-plan sales
Pre-sales are contracts to sell dwellings in a development before construction is complete, usually with a deposit paid. Some lenders require a level of pre-sales before they will fund construction.
An example
A developer markets townhouses off the plan and secures signed contracts on several of them. The construction lender reviews the contracts and counts qualifying pre-sales towards its condition.
Why it matters
Pre-sales show demand and give the lender comfort that part of the loan will be repaid at completion. Lenders differ on which contracts qualify, such as excluding related-party buyers or small deposits.
Points to check
Ask the lender which contracts count towards its pre-sale requirement, because some exclude related-party buyers, small deposits or contracts with unusual conditions. Check the sunset clauses in your contracts and what happens if completion is delayed past them. Track buyers' finance and settlement readiness as completion approaches. A pre-sale only reduces risk if it actually settles, so the quality of each contract matters.