How To Buy A Condo
With the right help, buying a condo can be simple and rewarding. Follow this guide for finding the right place.
John’s first experience as a condo buyer was both exhilarating and annoying. The 28-year-old account executive knew what he wanted: A trendy one-bedroom condo unit about a 10 minute walk from his job in downtown Edmonton. He also wanted a workout room in the building so he could exercise late into the evening after long days at the office.
After months of looking, John settled on a 650 square foot unit in a building that hadn’t even broken ground yet; he bought it based on a floor plan. That was his first mistake.
The showroom model was a bit bigger than the condo he had bought. The salesperson told him he would hardly be able to tell the difference. Well, the condo actually turned out to be quite a bit smaller than he had been led to believe. And it really wasn’t much like the showroom model at all. Other details differed as well. John was told he could move into his new condo in March 2015, but he didn’t actually get the keys until October of 2016 – 19 months later. He had heard stories of condo possessions being late – but not a year and a half. Even though he was able to keep renting his old apartment, it was frustrating.
Finally, John ended up paying a bundle in “occupancy fees”. When a new condo building is completed, it takes several months to be formally registered with the municipality’s Land Registry Office. You can live in the unit in the meantime, but technically you don’t own it yet. Until the registration goes through, you’ll pay occupancy fees – also called “phantom rent” – to cover the buildings costs, including property taxes. Usually this arrangement lasts three or four months, but in John’s case, the payments went on for a year. They don’t count towards your mortgage, so he wasn’t happy about that at all, but there wasn’t much he could do.
John’s story is as sobering as it is common. Condo lawyers can talk your ear off with stories about problematic and costly deals. It hasn’t helped that the Edmonton Downtown market has been hot in the last several years – many buyers, afraid to lose out on a great condo in a prime location, have been pressured into making decisions that come back to haunt them.
The real estate market in most Canadian cities isn’t as frothy as in years past. If you’re a serious condo buyer, this is good news. It means you can wait for the right opportunity and not worry about bidding wars.
Don’t rush into anything. There will always be a hot new building. Do your research thoroughly, because once you’ve bought, it’s a 30 year commitment.
A person will often go to Ikea several times before buying furniture. You’d be amazed how many people look at a condo for 20 minutes and then write up an offer to buy. You need to put more thought into it than that.
So let me help you put some thought into your decision. I will show you how to avoid the most common condo-buying pitfalls so you are satisfied with your new purchase.
Make Sure You’re a Condo Person
Before you even think about looking for a condo, ask yourself whether you’re suited to the lifestyle. That means being comfortable living with certain rules, and in close proximity to others. You’ll also need to make sure you’re okay with shared common areas and condo board politics.
Tracy lived in a condo for 11 years before finally accepting that she wasn’t suited to the lifestyle. When she bought the condo, she didn’t realize that you get no independence whatsoever when it comes to making decisions. If you’re in a minority in the group when something has to get done, such as renovating the common lobby, and you don’t like the plan, you have to suck it up. Tracy was also shocked at how dirty some of her condo neighbours were. Some even let their pets pee in the building. You could voice your displeasure, but you’re always dealing with everyone’s petty issues. She reached the point where she had to move out to stay sane.
Decide Between Pre-Owned and Pre-Construction
If you purchase a pre-owned (resale) condominium, you’ll see exactly what you’re buying. You can shop around, walking through various suites and pick the one that best suites you. Even if it needs some work, you can be secure in the knowledge that you got pretty much what you expected.
If, however, you decide to purchase a pre-construction condominium like John, you’re entering into the unknown. Sure, you can view sketches in the sales office, buy you have no idea what your unit will really look like once it’s built. Still, there’s an attractive trade-off; you’ll be the first owner of the unit, and everything in it will be brand new.
If you find it hard to visualize what your new space will look like, do what Fred did when he was condo hunting; view similarly sized units in other buildings. He set up viewings in older buildings with condos that where around the same square footage. What he learned is that his floor size could be big or small, depending on how it was laid out. It gave him a feel for the type of space the salesperson was talking about when trying to choose a unit from a plan.
Research the Builder
If the building hasn’t been completed yet, take some time to do an Internet search on the builder, their past projects and any complaints about the workmanship. If it’s a resale, find out if the builder is still in business and whether the company is financially stable. If it’s no longer around, the condo board (the group of volunteers who manage the building’s affairs) may have no legal resource if major flaws are discovered later on.
As well, try to get some feedback from people who have bought units from the same builder, either through Internet forums or from residents of the company’s other buildings. A high rate of people selling their units is a red flag. So is the fact that you builder is in court a lot. There are a few places you can go to look these things up, such as the Better Business Bureau (BBB) where you can check whether there are complaints or lawsuits against a particular builder. J.D. Power and Associates ranks condominium builders in the urban centres across Canada using a five star system. Or you could try an online forum where buyers informally and anecdotally discuss buildings and builders.
If you’re buying a resale unit, ask for the last two years’ worth of minutes from condo board meetings. They will give you a good idea of the types of problems you might be dealing with in the building.
To make sure your condo building (as opposed to your unit) is structurally sound, you may want to hire a home inspector. That’s what Sherry and her husband Michael did when they bought their Edmonton Condo in 2014. They had heard horror stories about a certain builder, so they hired an independent inspector to get an honest assessment of their individual unit and the overall building. When they heard those key words from their inspector – “You’ll never see a tarp on this place” – they knew it was the condo for them.
Work With People Who Know Condos
Hire a professional realtor to help with the buying process. Then speak with a mortgage broker so you get a feel for the type of mortgage you will qualify for before you start your search. You should also make sure you have a good lawyer to review both the offer to buy and your financing arrangements.
It pays to use a realtor who has a lot of experience with condos, as they are very different from houses. You can end up making some very costly mistakes if you rely on people who don’t pay attention to the details.
For instance, Tom recalls a story about a recent condo buyer who was relocating to Edmonton in a hurry. He saw a large suite, loved the pictures and asked his real estate agent to make sure it came with a parking stall and storage locker. Unfortunately, the agent did not ask enough questions. Once the deal was signed, the buyer discovered that his unit was in Phase 1 of the complex, his parking spot was under the Phase 2 tower, and his locker was below Phase 3. When the buyer needs to get something out of storage, he has to take two elevator rides to get to his locker, then another elevator ride to get to his parking spot. Tom did not want any part of this happening to him.
Other oversights? Not all parking spots are the same size, some are slightly smaller because they are positioned next to a pillar. With one of these compact spaces, you won’t be able to open your car door without risking a nasty dent.
Pay close attention to the location of the unit itself. Do you want to live on a high floor or a lower one? In general, the higher up your suite, the higher the price – usually between $3,000 and $8,000 more for every floor above the main level. Of course, you may want to pay extra for the better view. But if you’re on a limited budget, sticking to the lower floors can save you money.
Measure Your Unit
Before completing the sale you should actually pull out a tape measure and make sure your unit is as large as advertised. You would be amazed by show much the actual square footage can differ from what you were told.
Fred found out too late that the unit he bought in 2009 wasn’t nearly as large as advertised. When he measured the area before replacing the laminate flooring, he discovered it wasn’t 700 square feet after all. He trusted what was disclosed on the property feature sheet, but the condo was actually 550 square feet if you don’t count the balcony and bathroom.
Know Your Closing Costs
Closing costs can add roughly 1.5% to 2% to the purchase price of your condo. These costs may include a bank appraisal fee, legal fees, as well as a high-ratio mortgage insurance premium, which is required if you make a down payment of less than 20%. That premium is hefty – it can make up 1% to 4% of your outstanding mortgage.
For pre-construction units, your closing date is the day the building is officially registered by the builder, which could be several months – or even years – after your occupancy date (the day you move in). If you buy a new condo from floor plans, you could be on the hook for two months’ worth of maintenance fees, plus occupancy fees until the building is registered, depending on your deal. Only after the closing date will you begin paying down your mortgage.
Understand Your Legal Obligations
Make sure all the details of your condo purchase are in writing and never rely on verbal agreements. Every builder’s Agreement of Purchase and Sale documents are unique, so it’s important to have your lawyer review them fully.
A nightmare scenario that happened a couple of years ago shortly after the financial crisis, prices for pre-constructed condos in several markets fell abruptly, in some cases by 20%. Many people watched as the price of their pre-built condos plummeted to the point where they would lose thousands of dollars. In some cases, lenders withdrew the mortgage pre-approval, because the condo was now worth less than the loan amount. The harsh reality? Those buyers still had a legal obligation to buy the condo units at the price agreed to; if they walked away, they would not only lose their deposit, but the builder could sue for the difference in price. If you have to pull out of a presale contract, you’re often out of luck. The magnitude of the losses can be huge. Luckily, some builders did choose to renegotiate during the downturn. But other buyers lost their deposits and were sued.
Understand Condo Fees
The good news about condos is that you’ll never have to worry about replacing the roof or tinkering with the furnace again. But that convenience comes with a price, monthly fees. As a condo dweller, you own the inside of your unit. The outside of your unit and the land surrounding the building are owned collectively by you and all the other building residents. The general maintenance and insurance for these “common elements” are covered by everyone’s monthly fees, as are some – but not necessarily all – utilities. A portion of your condo fees will also go into a reserve fund, which is set aside for major repair and replacement costs that occur as a building gets older.
Of course, the more amenities your condo development boasts – 24 hour concierge, upscale fitness centre, valet parking – the more you’ll have to pay. When he was shopping for a condo two years ago, Trevor realized what a huge difference having fewer amenities made to the monthly maintenance fee. The condo fees were a low $330 a month when he moved in two years ago, and they’ve stayed low. Another building he was considering has had a 25% increase in the condo fee in the same period of time. That’s a huge difference!
Also remember that the larger the unit, the higher the fees. Builders guarantee that the maintenance fees on pre-construction units will not increase for one year after your purchase, but after that, don’t be surprised if they go up substantially.
Before buying, find out exactly what your condo fees include; some buildings include the utilities in the maintenance fee, while other buildings have the individual owners pay some of the utilities directly. With a pre-owned condo, determine how much the fees have increased annually since the building went up. In many cases, it’s about 2% to 5% a year, but the increase can be higher, especially in older buildings.
A word of warning, watch out for rock-bottom fees in pre-owned condos. They often signal that little maintenance has been done, so those expenses may come up shortly. Walk through the building. Is the paint chipping? Are tiles peeling off the walls of the common areas? If so, those will probably need to be repaired and your condo fees will rise to accommodate that.
It’s possible for many months – or even years – to pass before construction begins. That’s because there has to be a certain percentage of binding sales agreements before the builder can break ground, the estimated occupancy date set out by the builder at the beginning of the project is often very optimistic. Be sure to have a backup plan if you can’t move in on the day were told.
Review the Condo Documents
The Condo Documents can help you determine whether the condo board is spending the residents’ monthly fees appropriately. The Estoppel Certificate will also tell you whether the present owner of your unit is up to date in paying all of his common expenses – this is important, because if a unit’s common expenses aren’t fully paid, you will be liable for them.
The Condo Documents will provide a full look at the condo corporation’s financial affairs and rules that owners need to know. It lets you know if there are any lawsuits against the corporation or any special assessments because of upcoming expenses. Are pets permitted? Can you take out the carpet in your unit and put in hardwood? Can you rent out your unit if you’re not using it?
Know the Role of Your Condo Board
The condo board determines the monthly fees for all units, usually based on the size of each unit, the number of units occupied and the projected expenses for maintenance and repairs. Board members are elected by the residents, typically they’re people who are willing to contribute time and effort to make the building operate efficiently. Duties are both administrative and regulatory, and include the awarding of contracts for maintenance and repair of the grounds, ensuring a sufficient reserve fund for emergency repairs, hiring staff and setting codes of conduct for acceptable behaviour in the building, the board also serves as a kind of court of appeal when community-related disputes arise between residents. The more you know about your condo board, the better positioned you will be to deal with any issues.
While the condo board can help if you have a problem with your unit, they can also pose a problem if they or other residents don’t like your behaviour. The solution? Try to attend at least a couple of condo meetings every year so you are aware of the residents’ concerns. Many times that ‘s enough to avoid future confrontations.
Always Think Resale
Although you may live in your condo unit for years, there will come a day when you will want to sell. So don’t overlook the value of smart upgrades. If you’re buying a new suite, consider requesting stainless-steel appliances and granite countertops, hardwood floors, and quality lighting. And try to buy the largest suite you can afford. Studios and one-bedroom suites are more difficult to resell. Make sure to avoid units that look out over the garbage pick-up area or garage entrance, as well as suites near the elevator (more noise and pedestrian traffic). And if you can afford it, purchase a parking spot – even if you don’t drive. You can rent it out in the meantime, and when you go to sell your unit, it will be that much more valuable.
John learned all of these lessons. Barely a year after living in his new condo, he looked out his window and discovered that builders were preparing to put another tower on the vacant lot next door, which would, leave him with no view. So what did he do? He sold his condo and rented a pre-owned suite for a year in a tower nearby. Before he bought another condo, he really wanted to make sure he would enjoy living there.
The good news? He loved his new place. The fees were lower, the amenities were great and it was still within walking distance of his job. After a year, he bought an 800 square foot unit in the same building.