Buying a pre-construction condo is a big financial investment. First, it’s not built yet, so you’re buying based on a conceptual understanding of what the final building and suite will be like. Second, unlike buying a freehold property like a house, you’re also paying for maintenance, upkeep and common amenities. That’s why it’s important to consider all of the facts about buying a pre-construction condo before you commit.
Unfortunately, there are numerous commonly believed myths about the process of purchasing a condo that cloud the minds of many. Read on as we uncover the truth behind seven of the most popular myths about buying a pre-construction condo.
1. They’re Not Affordable
The idea that the average individual or couple cannot afford to purchase a condo in downtown Toronto or the GTA is simply untrue. In fact, purchasing a condo (in many cases) is a more affordable and desirable option than a freehold home, especially in Toronto’s core. According to the National Bank’s chief economist, Stéfane Marion, “The single-family home market has become unaffordable and that’s the reality for markets such as Vancouver and Toronto.” That has pushed many first-time buyers into the condo market, which has actually become more affordable for such buyers because of an abundance of supply, explains the Globe and Mail.
What really matters is whether buying a condo is affordable for you. To determine affordability, visit the website or sales centre for the condo development you’re interested in. The developer’s website may have an affordability calculator and sales centre staff should be equipped to help you out and present you with suite options that align with your budget. Make sure you know your financial stats including your monthly income, monthly debt payments and the amount you have available for a down payment in order to get an accurate idea of what you can afford.
2. You’ll Wait, And Wait… And Wait For Your Condo To Be Ready
It’s a common belief that if you buy a condo during the planning and development stages, you’ll grow old before you even step through the front door of your condo suite. While this can be true, it’s not the norm, especially if you do your research to ensure you’re buying from a reputable builder with a solid track record.
While delays can be caused by inconveniences that are beyond the builder’s control (such as labour strikes or poor weather conditions), top-rated condo builders will always make it their mission to stick to the development timeline as closely as possible. Be sure to check the builder’s history on Tarion’s builder directory before signing on the dotted line for your new condo.
3. You Have To Pay A 20% Deposit All At Once
A typical deposit for a pre-construction condo suite for a Canadian buying from a builder is 20% of the purchase price (international buyers typically pay 35%). Now, if you’re buying a $500,000 suite, 20% is a significant chunk of cash, especially all at once. Luckily, quality and trusted builders don’t require a lump sum payment. Instead, payments are usually spread out over a period of time, sometimes as long as 15 months.
Even though your deposit is fully protected by the Condominium Act, it’s always a good idea to ask the sales centre representatives what other rules and approvals the builder has in place to prevent fraud and ensure your deposit is completely secure.
4. You Could Lose Your Deposit If The Developer Folds
While the risk is low, developers have filed for bankruptcy in the past. That’s why the Ontario government has regulated the Tarion Warranty Corporation to provide safeguards to all new home purchasers.
When buying a pre-construction condo from a reputable developer, your purchase fees will include a Tarion Warranty Corporation enrollment fee that provides deposit protection of up to a maximum of $20,000. This way, in the unlikely event that the condo project is not completed, the financial loss will be less significant.
5. You Don’t Really Know What You’re Going To Get
If you’re purchasing your condo from a widely respected developer during the pre-construction phase, there is no need to worry that your suite will fail to meet your expectations.
Take your time to explore the presentation suite at the sales centre, look closely at the floorplans, finishes, and amenity renderings and don’t hesitate to ask questions. You can even visit other buildings by the same developer to see what they’re like and get a feel for the style and atmosphere to see if it suits you.
Again, buying from a trusted builder backed by years of experience and completed projects ensures that the suite you’re purchasing and the building amenities will align with your vision.
6. You’ll Get A Surprise Bill When Closing Time Comes Around
When looking to buy a condo, it’s easy to overlook the total cost of ownership, which ends up being more than just the deposit and mortgage payments. Maintenance fees, property taxes, utilities and so on also need to be budgeted for. Then, there are closing costs, which are a very important consideration when buying a pre-construction condo. Closing costs include land transfer taxes, meters, legal fees, warranty fees, development levies and administration fees.
Development levies in particular have been controversial in the media recently. Condo developers are required to pay certain development levies to municipalities to help fund city infrastructure. In exchange for approved increases in height or density, developers often make monetary contributions to help build public community centres and parks. If you’re buying from a developer, it’s important to determine how they manage these fees. Are they included in the purchase price, or will they be added to the bill later?
A reputable builder will not attempt to hide any closing costs from you, and will actively work to include any extra fees into the price of the suite so that they can be included in your mortgage payments. Consider this when you’re evaluating prices. If a suite by one developer seems more expensive than the rest, it doesn’t necessarily mean you’re overpaying. It could mean that all of the costs (including development levies) are being included in the purchase price, meaning there won’t be any surprises for you at closing. Beware of developers who try to entice you with low prices as you may end up cutting a big cheque at the time of closing.
It never hurts to do your due diligence and have a laywer review the Agreement of Purchase and Sale, Disclosure Statement and the Tarion Addendum (if there is one).
7. Developers Don’t Really Care About Their Buyers
While there certainly are builders who are merely looking to earn fast money on condo developments, the notion that all developers share the same goals couldn’t be farther from the truth. To avoid wondering if your builder truly cares about your experience as a future owner in their building, explore your options with a developer that has a customer care department.
Even if you’re purchasing from an award-winning builder, it’s reassuring to know that if you have a question about your suite, you have a trusted, caring team available to address any of your concerns at no extra cost.
Furthermore, when evaluating a condo builder, it’s wise to get clarification on which company will actually be managing the building after you move-in. Do your research on their credibility, and learn if they’re affiliated with the builder. If they’re a sister company of the builder, you’re more likely to experience a consistent level of customer care as you have throughout the purchasing process.