What to consider when buying a unit from a plan

Daniela Andrews, National Post

In 2000, the average price of a resale condo in Toronto was $292,300, with an average price per square foot of $185. In 2009, despite an economic downturn and a worldwide recession, those numbers had increased, with the average price reaching $324,000, and the average price per square foot increasing more than 90% to $352 per square foot (data courtesy of Urbanation). For many people, these prices represent a daunting obstacle to entering the world of home ownership. However, there is a less expensive solution for condominium buyers – buying from a plan.

Comment: Except that new condos cost more than resale. That is why the price keeps going up, and the size keeps going down. Every new project costs more, for a smaller space. Never mind the fact that you need 20-25% down, as opposed to 5% down for a resale condo. There is no way at all that new condos are less expensive.

When buying prior to a building’s construction, the purchaser selects a unit based on a floor plan, without ever seeing the physical space. While not an ideal substitute for experiencing the constructed quality and layout, purchasing from a plan is excellent for those who can’t afford resale prices and aren’t in a rush to move (buying from a plan often involves long wait periods as the building is constructed and occupied).

Comment: If you can’t afford resale prices, then you certainly cannot afford new prices. Trust me.

Condominium projects typically launch at the lowest price per square foot, with continuous pricing increases as sales accumulate and construction begins. At the start of a project, lower prices compensate for a higher degree of risk. Purchasers are faced with many questions: Will the project be completed on time? Will the market experience a downturn during the waiting period? Will the final product be what was promised? Once construction is complete, the risk is much lower, since buyers can inspect the building and the unit firsthand, experiencing the tangible reality of the space, instead of the intangible promise delivered during the marketing of the project.

Comment: The risk is so minimal as to be negligible. In the darkest depths of the economic slowdown, plus a while before and after, only 2 projects failed to launch. And both are now selling. Of the 100s of condos we have seen launch in the past years (with over 100 being constructed as I type this) only a handful have not progressed to construction. And most of those have re-launched as something else down the line. The market has only had one tiny downturn since 1996, so that is not a real concern.

While buying pre-construction presents a pricing opportunity, there are important points to consider before finalizing the purchase. By giving thought to these areas during the purchase decision, pre-construction condo buyers will hopefully experience a wrinkle-free move-in day, instead of becoming the owner of a 400-square-foot shoebox with a concrete pillar in the middle of the living room and a balcony that faces a concrete wall.

Comment: Except that is the experience of so many new buyers. Floorplans are subject to change, and the builder is allowed an astonishing amount of leeway in what they have to deliver and what they can promise. They are allowed up to 6% smaller units, they measure 6 inches into the walls, they include closests and hallways and furnaces in their square footage. A unit that is 600 square feet on a floor plan can end up being 518 square feet once we account for the 1 foot in either direction that is in the walls, plus 6% shrinkage (600sf = 20×30, less one foot = 19×29 = 551 – 6% = 518 square feet). Which includes all closets and furnace room, bathrooms and all. So you end up with maybe 400 square feet of livable space. But that can legally be sold to you as a 600 square foot unit. Wait, isn’t the balcony 38 square feet – and is it included in the total size? Your condo just got even smaller.

The first thing to consider when purchasing a condominium from a plan is the location of the unit within the building. Study the building plan and scale model. Know exactly where the suite is situated. Make an educated guess as to what will be seen out the window. Is there a building shading the balcony? Does the unit overlook a parking lot? Buyers should be especially cautious about neighbouring parking lots, as they are often slated for future development. This can be investigated with a phone call to the city’s zoning information office, to check the zoning of the space, and to the planning department, to see if there are any current proposals with the city to build on that location. These steps won’t guarantee that nothing will be built in the future, but they’re a good step to learn the immediate plans for neighbouring sites.

Comment: And even if there is nothing being planned right now, a new building could sprout up the day after your phone call. I have people ask me all the time if the view is going to change – of course it is! It is just a matter of when. And read your contract. They all have wording in them that stipulates that if the builder owns land beside the condo, they can build on it and there is nothing you can do. Wrecked view? Too bad. Noise and dust for years? Too bad. You cannot sue, you cannot do anything. Just make sure you are not paying a premium for a certain view, that is money not well spent.

Know the direction the unit faces, and make a realistic guess about how much sunlight it will get. I bought a unit, pre-construction, with a beautiful 200-plus-square-foot terrace, only to find that it doesn’t get any direct sunlight. Ever. Not even for a minute. It might as well be in the shadow of one of the Bay Street towers. Avoid my mistake. Know what’s going to be above, below, beside and across from your unit. Unknowingly purchasing above the parking garage or beside the garbage room is going to be an ongoing source of frustration for anyone who dislikes noise or the smell of day-old garbage.

Comment: Except they don’t tell you where the garbage pick up is going to be. So a unit on a high floor… if you can afford the extra charges builders nail you with. When they say a unit “starts at” a certain price, that means ground floor. If you want it on the 10th floor, that is an extra $10-$50k, depending. Some charge $1,000 per floor, some charge $5,000, some charge more. South views tend to cost more. Water views cost more. And don’t even get me started with the cost of parking and lockers. You think $400-450/sf for the condo is bad? Think about the $3,000-5,000 you spend for that little cage. What is it, 5x5x8 if you are lucky?

When buying from a plan, it’s not only the location of the unit that purchasers must envision, but also the quality, space and finishes of the suite. In a sales centre, model suites give buyers an idea of what their unit will look like. Almost all the time, the model suite has been assembled by a team of interior design experts, using a clever combination of standard finishes, upgrade finishes and custom-built pieces. The trick is to know which items fall into which category. While the model may have hardwood floors throughout and stainless steel appliances, the standard unit may actually come with carpet in the bedrooms and plain old white appliances, so it pays to confirm with the sales person as to what is standard and what’s been upgraded before making any decisions.

Comment: And all model suites have every upgrade available, be aware of that. And the contract states that they are allowed to make reasonable substitutions, so you may never get the tiles or counter top you chose. And there is nothing you can do about it. And upgrades are paid up front, they are not rolled into your mortgage. Another cost you have to add to the huge 20-25% down payment, the legal costs and the double land transfer tax. Oh wait, now you have to pay HST as well!

Model suites also typically have ceiling heights that are higher than an actual unit. Nine-foot ceilings don’t have the same “wow” factor for buyers, so ceilings in a sales centre are often exaggerated. A foot or two in ceiling height can make all the difference in a small unit, making it feel like either a closet or a truly comfortable space, so confirm actual ceiling heights and then find a space at home or at work that matches that height and see how it feels.

Comment: And understand that they can promised you 9-foot ceiling and then give you 8 feet and you have no recourse.

Pre-construction, a buyer has no way of seeing or experiencing the building in a real sense. While scale models, representative illustrations and sales centre marketing materials are designed to help purchasers imagine the final product, it’s prudent to give serious thought to every aspect of the constructed building, determining whether it’s the right fit for a particular budget and lifestyle.

Put together a budget and determine what’s affordable. Maintenance fees should be included in monthly budgets (fees vary from building to building, so ask what’s included and what the fees are estimated to be, and then count on them to increase during the first year of occupancy, if not before). Deposit and payment schedules should also be noted. Typically, an immediate deposit of $2,000 is required, with the balance of 5% within 30 days, and then payments at set intervals, until an amount predetermined by the developer is reached within a given timeframe.

For example, when I purchased my condo pre-construction for $300,000, I paid $2,000 at signing, the balance of 5% ($13,000) in 30 days, and another 5% ($15,000) in 180 days. That was the total required by my developer, but since my goal was to put 25% down, I wrote a clause into my agreement of purchase and sale, allowing me to pay an additional $45,000 (the remaining 15%), 90 days before taking possession. Not all schedules are a perfect fit for all purchasers; the key is to find a deposit schedule that fits within your budget.

Comment: Your experience is not normal and you should really point that out. I find it hard to believe that a builder took only 10% down, that simply does not happen. I have seen some give deals and let people go with 15% down, but the rest of them ask for 20% or 25% down. And most people looking for a $300,000 condo simply do not have $60-75,000 to put down. And then pay for everything else, like upgrades. And most builders do not allow you to change the contract. Sure, they are more than happy to take more of your money, but try any other changes and see how fast they say no. Oh wait did I mention the closing costs? The builder will want you to pay for the hydro hookups, tree planting, water connections and a bunch of taxes and levies. These costs can get into the $5,000-6,500 range, so be sure to find out what they will be. And they have to be paid up front, at closing, not rolled into your mortgage. Seriously, you are going to need $100,000 cash on hand to buy a $300,000 condo from a builder.

Amenities should be also considered as they will affect fees and lifestyle. When I purchased my condo, I looked for a building without any amenities (no fitness centre, no party room, no concierge) because I didn’t think I would use them. This helped keep my monthly fee relatively low, compared to full-service buildings with tons of amenity space. However, some buyers may want the convenience of a concierge, the availability of a meeting room or the use of a theatre area. It’s a personal choice, and should be part of the purchase decision.

If the building is part of a larger community being built in phases, it’s useful to know what sections will be completed for your occupancy. No one wants to move into a building, eager to use the fitness room, only to find out it’s being built as part of the next phase, still three years away.

Buying a condo pre-construction can be scary. There are unknowns, but the best thing a buyer can do is ask a lot of questions, educate themselves as much as possible, have their condo documents reviewed by a lawyer and always remember that brand new condominiums have the benefit of a 10-day “cooling off” period, during which time a buyer can always change his mind.

Comment: And bring a Realtor with you. It costs you nothing and they have a wealth of experience dealing with builders and new sales centres. You will not get a deal if you go by yourself. Bring someone to represent your interests – plus your chequebook!

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Contact the Jeffrey Team for more information  -  416-388-1960

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