Buy a Pre Construction Condo or Resale?
I have this debate at few times a week with my clients; they are always asking me about the differences between new and old. It makes for great conversation over a cup of coffee. I find that most people would change their prospective after I'm done with them and they immediately become anti new. Buying new has little to some advantages and they stem from being able to pick a specific floor plan and finishes to what floor and view you prefer. It’s tough to find any specific finishing materials that you might require when buying a resale but aside from that setback every other detail is more than possible with a resale.
Allow me to explain as to why I never recommend to anybody buying new and what the builder does not want any of its prospective buyers to know. Did you know that the builder is required to give a 10 day cooling period to every buyer? This allows the buyer to walk away from the transaction with no questions asked. A buyer who did not have any representation from an independent Toronto Realtor at the time of purchase should use these 10 days to seek legal advice and incur those costs as it will save them a bundle! The builder does disclose in the builders agreement to purchase but any of its sales/reps will never talk about all the hidden costs unless you ask the right questions. The first cost is that any new home in Ontario over the 400k mark is H.S.T applicable, but the builder includes the tax in the purchase price so the consumer more times than none doesn't even know they are paying 13% on top. Sad but true.
Most inexperienced buyers that jump on the pre construction condo frenzy are not aware that there are two different closing dates when the unit has been completed. The first is referred to as the occupancy closing and the second is known as the transfer of title. Now it's important to understand the differences between the two. The first is huge cash grab from the builder as you do not own the unit but you may occupy it until the building is registered and then continue with the transfer of title closing. In the interim as you live there you are not required to pay the mortgage but you must pay the occupancy fees to the builder until the date of registration. It's also important to note that the occupancy fees are generally higher than the average mortgage plus monthly maintenance fee combined. That's a rip off if I may be so blunt. But wait, it gets even worse. As the unit occupant you are not legally entitled to rent the unit if you wish to without the expressed written consent of the builder. Good luck with that one unless you’re willing to fork out a minimum 10% of the yearly rental income. This legislation was enacted to keep all the speculators away. Even so, it's just downright ridiculous.
I have seen some builders not register the building for years and the occupant is paying all the fees with none of its money going toward any equity. The Condominium Act requires the building to be registered the moment the last sheet of drywall on the top floor has been installed. Builders use this as a tactic and sometimes stall the completion to soak as much as they can from prior occupancy closings. Could you imagine being that pour sap of a buyer stuck on the first floor of a thirty storey building? I feel for you! You will pay for at least a year's worth of occupancy fees before the building is anywhere near completion.
Another tip is to make sure you have financing in place at the time of title closing as mortgage rules and legislation may change until the date arrives. Buyers need to make themselves aware and take all necessary precautions.
Buyers beware when buying pre construction condos or lofts for that matter. I will be posting a blog that that looks at that the benefits of buying a resale Toronto Condo. Please check back.