Buying a pre-construction condo is a bad idea for many people. Projects get delayed, builders rip people off and lots can go wrong. Before getting yourself into something that starts off amazing and turns into a nightmare it is important to do plenty of research.
The Pre-Construction Condo Buyer Checklist
1) Research the Builder. Do they have any Tarion complaints against them? What is their reputation like? Try to buy from reputable builders when possible, though every builder had to get their start somewhere.
2) Actually go see places that the builder has built already and know floor plans. Your Realtor can help you with this. Go see some places they have built. Try to understand how the floor plan on paper will translate to reality.
3) Get your development fees capped. Development fees are the one things that can cost you a lot of money. If the builder won’t cap these, run, don’t walk.
4) Know your closing costs: Development charges, Tarion fees, Land Transfer Tax (here’s a calculator for LTT), Legal, condo upgrades, etc.
5) Look for energy-saving or green initiatives. It’s 2017 and green technology has come a long way and is now much cheaper for builders to use. Look to see what builders are implementing which will help keep the building maintenance costs low over time. Just because you don’t have an electric car now, chances are in the future these will become commonplace and buildings will need to have charging stations. Retrofitting will be very expensive in the future so it is cheaper to install these features at the time of building.
6) Understand how the occupancy period works. When you first get the keys to your new condo, before the building registers, you don’t actually own your unit yet. This period known as interim occupancy and during this time you pay an interim occupancy fee to live in (or possibly rent out if you negotiated this in your contract) your unit.
The occupancy fee consists of three parts: interest on the unpaid balance of the purchase price of your condo, an estimate on the municipal taxes for your unit, and a projected common expense contribution to help start building he reserve fund and keep the building operating. Usually this is a reasonable time between 60-90 days with quality builders, but I know of condos where this has taken over 2 years! The downside to this period is selling your unit is much more challenging and you can’t start building equity / paying off your mortgage until occupancy completes and the building registers.
7) Negotiate! If the unit you like has been didn’t sell out in the first week or two at the VVIP/VIP sales events then there could be some room for negotiation. Try to get them to throw in a free locker, parking space, or money towards upgrades. Often the builders send me incentives also, so feel free to sign up for my VIP condo mailing list to get notified of any great deals:
8) Hire a lawyer experienced with pre-construction closings who knows what to look for in builder contracts. You will get a 300+ page booklet that needs someone to go over with a fine tooth comb. Fees and building rules could be impact your decision the most. For example, if you have 2 large breed dogs, make sure there are no rules in the condo documents that could restrict this.
9) Compare pre-construction pricing with resale pricing to understand the market. If you are buying a new condo for $1000/sqft and the highest priced building in the area is $700/sqft, this probably is a horrible investment. Unless this building is so amazing it might hard to recoup your costs if you don’t plan to live there for 10 years or more.
10) Understand all the things that can go wrong. Expect that you won’t get exactly what the builder promises and the building experience delays up to several years. Sometimes delays are great! In a hot market you can make a lot of money on your 5-15% down payment. Unfortunately if your intention is to move into the unit, you may think differently. Google Urbancorp problems if you want to read plenty of horror stories. Things can go wrong but with every investment you should understand the risk.
11) Consider a clause to allow you to rent the unit during occupancy and ask if you can market it on MLS during this time.
12) Pre-qualify yourself at an ultra conservative mortgage rate. Just because mortgage rates are 2.X% now, doesn’t mean they will be when the building registers 5 or so years later. If you can’t afford the condo at a 5% mortgage rate now and don’t see yourself coming across a lot of money in the future, you might be stretching yourself too thin.
13) Get an assignment provision added at no fee. In case an emergency arises and you need to sell the unit before it is ready, this could save you big time!
14) Keep back some money if things go wrong. It is always good to have a safety net if your situation changes, you lose your job or something else unexpected comes along. Don’t buy a pre-construction condo if you are trying to perfectly balance the costs.
15) Hire a Realtor who has experience with pre-construction before going to look at sales centers. This should really be step one, but I figured if I put this first you might not read on. Sure, your aunt may have her real estate license, but if she doesn’t discuss any of the things listed above she probably doesn’t know the first thing about purchasing a pre-construction property. Many Realtors think they know, but unless you have actually gone through the purchasing process then it is very difficult to know what to look for. Interview a few Realtors in fact because you will quickly see we aren’t all the same.
Need Help Buying A Pre-Construction Condo?
Pre-construction is a great investment for many, just know what you are getting into before signing on that dotted line. I have helped clients buy pre-construction condos and have purchased my pre-construction condo so if you would like advice on whether I think pre-construction is a good choice based on your situation, just shoot me an email below or call/text me. Realtors get paid more money to sell pre-construction condos but 9 times out of 10 I will recommend that a resale condominium is a better move.
