Buying a Condo: its not like you are buying a pair of shoes

And so it begins . . . .

When you buy a condo unit from a builder, you will be dealing with the builder’s real estate sales agents, who will be in the project sales office. They will be able to discuss details of the project with you. When you buy from the builder, you buy a basic unit, and can add on custom features and upgrades, at additional cost. (Think of options on a car, it is the same idea. With a condo, you can upgrade the kitchen cabinets, the bathroom finishes and fixtures, the paint colours, the flooring, and many more items.). They will give you literature, or refer you to their website, about the choices open to you, in terms of the types and sizes of units available, and the add-on extras, as well as about the building itself. Look for energy-saving features in the construction and operation of the building, and examine as well the common-area amenities. Remember the size of the units that they quote you (in square feet or meters) may be more than the actual living space available to you, by up to 10 or 15 % (if they say it is a 700 square foot unit, some of that will include structural features, and the actual liveable space may only be 600 to 650 sq. ft. Also remember that no matter how big a balcony is, you will only use it a few months of the year, it is not really living space. If you ask how the space is measured, they will usually say that it is according to the architect’s measure, which will include the space to the inner surface of the outer walls of the unit.)

Once you know what you want, you can tell them, and they will prepare an Agreement of Purchase and Sale, which they will ask you to sign and to leave a copy with them along with your first deposit (first of several). Deposit money is usually paid to the builder’s lawyer, and held in trust pending final closing or other termination. You have ten days to review it and change your mind. They do enforce the deadline strictly, so be careful of it.

(Note well, the ten-day review period only applies to new condos purchased from the builder, it does not apply to any other home purchases you may make in Ontario.)

But before you sign . . . .

When you examine the Agreement, you will notice that the sale price includes the HST. There is a rebate of the HST available to you as the buyer, if you are going to make this place your, or a close relative’s, principal place of residence. You won’t get this rebate. The rebate is assigned by you to the builder on closing, and the builder counts on getting this rebate when the purchase price is set. If you are not eligible for the rebate, then you will be obliged to pay the amount it would have been to the builder. This could be $10,000 or $20,000 or more, depending on the price of the condominium.

You should also get a Disclosure Statement from the sales people. This is an important, multi-page document, written in plain English, outlining the features of this particular project, and is very important for you to read. It will tell you things such as whether there is to be public parking, retail space, whether the condo corporation to be created will have to buy the superintendent’s and guest apartments from the builder and for how much (usually this is the case, and the builder gets a mortgage back as well), and a lot of other financial and building information. If you can get this before you sign, even better. They will also give you a copy of the proposed Declaration and first by-law for the condominium corporation, but much of the information in those documents should be in the Disclosure Statement.

You may also want to consult with your banker or mortgage broker once you have determined the pricing of the unit you want, but before you sign the Agreement. Keep in mind that if the building is under construction, it may be two or three years before you close, and can get your mortgage money. But it would be a good idea to see how the figures are going to work, whether you can manage it, and if you can get a pre-approval.

Oh yeah, about that HST rebate. . . .

When you examine the Agreement, you will notice that the sale price includes the HST. There is a rebate of the HST available to you as the buyer, if you are going to make this place your, or a close relative’s, principal place of residence. You won’t get this rebate. The rebate is assigned by you to the builder on closing, and the builder counts on getting this rebate when the purchase price is set. If you are not eligible for the rebate, then you will be obliged to pay the amount it would have been to the builder. This could be $10,000 or $20,000 or more, depending on the price of the condominium.

There are cost add-ons too. . . .

You will also notice that there are a number of costs added on to your purchase price on closing, ranging from the development levies from the city to their lawyer’s fees for holding your money in trust. This practice has grown a lot in the last few years, and can add up to $20,000 to the cost of buying a unit. These are all theoretically negotiable costs, but it is very hard to eliminate or cap them in practice.

It’s a long way to go . . . . . . . . .

The final closing date may not yet be a firm one, but there will be a schedule from Tarion attached, setting out the builder’s rights to extend the closing, and what rights you may have to terminate if the extensions become too long. Your rights are quite limited, and you may find that you are locked into a transaction that may not close for a few years. You also won’t collect much, if any, interest on your deposits, as the builder is only obliged to pay at the rate of prime less 2%, which these days is often 0 .

Interim what? And it’s going to cost how much ?

Halfway to the final closing date where you actually get ownership of what you bought, there will be an interim closing date, on which you are required to take possession and pay a further deposit (usually between 5 & 10% depending on the project, builder, and how much you have already paid). You will not own the unit yet, and cannot get mortgage financing on it yet. The building will not be finished yet, and will be a construction zone, but the interim closing is mandatory. Depending on the project and the terms of the Agreement, you may or may not be allowed to rent out the apartment to a third party during the occupancy. You may or may not be allowed to sell your interest in the property at this point, depending on the wording in the Agreement. Most builders charge fees for agreeing to these things.

Once the interim occupancy closing is completed, you will be paying occupancy fees until ownership is transferred to you on the final closing, which could be a year or two away, depending on how much of the building is completed at this point. The occupancy fee, paid monthly, basically consists of the builder’s financial carrying costs of the unit, together with estimated amounts for property taxes and for what the maintenance costs would be when the condominium is registered. It is usually $1,200 to $2,000 per unit per month, depending on the project.

Home at last . . . .

The final closing will not occur until the builder has the approval from the city that the building is completed and complies with all regulatory requirements, and registers the condominium corporation declaration on title. Theoretically, it is possible the builder would not comply with the city requirements, in which case the deposit money is returned, and you have to vacate. In practice, this seldom happens.

Once you have the final closing date (usually you get a month or so notice, but the Agreement can provide for as little as two weeks notice), you will have to complete your mortgage arrangements, and attend with your lawyer to complete and sign many closing documents. When reviewing the Agreement before you sign, you should try to ensure it gives you a minimum of one month’s notice to complete and close, more if possible. The mortgage pre-approval you may have gotten when you first signed the Agreement will have expired some two or three years ago, and you will have to get a new one, at new, and possibly higher, interest rates. You will need time to do this. Depending on the lending requirements in force at the time of the closing, you may also need to come up with more money yourself in addition to the deposits you have already paid and your mortgage. There will also be other additional costs to complete the purchase, such as Land Transfer Tax, which you will need to discuss with your lawyer.

A purchase from a builder is a more complicated and longer process then a re-sale purchase. You also don’t know exactly what you are getting, as it hasn’t been built yet. You also don’t know who your neighbours are, or how well-run it will be. But by buying early, you do have the chance to participate in any appreciation in the price of the unit when it is finished.

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