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Articles & Guides - Buying Toronto Condos & Real Estate
Toronto Condos: Should you buy new construction or a resale unit?
If you're in the market to purchase a Toronto condo, should you buy new construction or resale? You will have to make that decision one day, but this article should help weigh the different options.
The same decision comes into play with houses, but it can be a more complex process with Toronto condos because of the longer time it takes for construction of the building.
So, let's get into it and have a look at the pros and cons of buying a new condo unit or a resale.
You've found a Toronto condo that looks good, how do you evaluate it?
If people are already living there, it can be much easier. Talk to some of the owners and ask them about the quality of construction, how well the condo is managed and if they have encountered an problems. You may also want to think whether or not they the kind of people you want as your neighbours.
Especially when it comes to first time condo buyers, knowing how to evaluate a condo that is not yet completed is more difficult. Check out the builder (Tarion's website has lots of information about builders, it can be a great resource). Talk to unit owners in other condominiums the company has built.
A potentially major point is noise. Be sure to ask about the steps that have been taken to soundproof walls and floors between living units. Inadequate noise control can be a major headache, particularly in a multi-family dwelling.
The type of neighbourhood the condo is in will obviously affect the resale value of the unit you are contemplating. Is the neighbourhood growing into a pleasant residential area? Or are there signs that commercial or industrial buildings may be in store for the area? What about other people living in the area, are they quiet or loud? Remember to check out the location both during the day and at night, to get the full picture.
Toronto condo buildings that are under construction or recently completed don't have a history, so it can be hard to find out about any problems with the project. Some people suggest you get a home inspection anyway, even though it is new, but that is not really necessary since you will have the protection of a Tarion New Home Warranty.
And don't feel that you need to be wary about any construction warranties, since Tarion has been legislated to help protect consumers. Most issues related to the warranty are resolved between builders and owners without the intervention of Tarion. When necessary, Tarion will intercede to protect consumers when builders fail to honour warranty obligations.
The Ontario New Home Warranties Plan Act outlines the warranty coverage that builders are required to provide to their customers. The aggregate maximum warranty coverage for new homes and condominium units is $300,000. The maximum coverage for condominium common elements is $50,000 times the number of units, to a maximum of $2.5 million.
NOTE: Tarion only covers brand new buildings. If you are buying a newly converted loft, the warranty may not apply as the building is an existing structure.
The problem with searching the internet for information about the builders is that many developers incorporate a new company for each development, so that they can keep any problem limited to a single development. But looking into the builder on the Tarion site will allow you see all of their developments and the companies formed to build them, all tied to their main company name.
Of course, there can be construction delays - are you protected if the building takes too long to be built?
Yes, the builder is permitted to extend the occupancy date of a purchaser's condominium unit if the purchaser receives proper written notice of the extension.
Every purchase agreement for a condominium unit will include either a confirmed occupancy date or a tentative occupancy date.
If the purchase agreement gives a tentative occupancy date, the builder is required to inform the purchaser in writing of the confirmed occupancy date no later than 30 days after the roof assembly is completed (or another specific stage of construction as specified in the purchase agreement).
If the purchaser is not given notice of the confirmed occupancy date 90 days before the tentative occupancy date, then the tentative date automatically becomes the confirmed date for the purpose of calculating compensation for any delays.
Once the confirmed occupancy date is established, the builder is allowed to extend it once by up to 120 days. In this situation, the builder must give the purchaser at least 65 days written notice. The builder can also extend the date by up to 15 days if they give the purchaser at least 35 days written notice.
The builder is permitted to use both of these extensions as long as they give you the required notices and the total of the two extensions does not exceed 135 days.
Please note that a builder can delay occupancy of a new condo unit for up to five days without giving notice or compensation. Also, compensation will not be paid for delays caused by events beyond the builder's control, such as strikes or floods, or for delays which the purchaser causes.
NOTE: Just to repeat, warranty coverage only applies to completely new buildings and not to loft conversions that are being built from an existing structure.
This is why you must look very carefully at any dates in a potential purchase agreement. If you buy your Toronto condo right at the beginning of the developer's sales campaign, you can expect two years or more before your unit will be ready. Be sure you understand tentative and confirmed occupancy dates and what conditions they depend on.
Unfortunately, it is common in the Toronto condo industry for buyers to wait longer than the time set out in the agreement of purchase and sale. First off, condo builders won't start construction until they have firm sales for at least 60 per cent to 70 per cent of the units. Generally, they can't get the financing to proceed until that target has been met. Banks like to make sure they are going to get their money back.
With the raging hot condo market in Toronto right now, you may face delays caused by a shortage of building supplies or skilled labour. With so many buildings going up, there are only so many skilled trades to build them. And there is only so much material from which to build them. And only so many trucks to deliver the materials. And so on...
While you can get a better deal by buying your condo from plans, if time is an issue for you (or you do not want to buy from plans and want to see the finished project), you should think about waiting until the condo is almost done. Or, consider buying a resale condo.
A major point to remember - since construction delays are common, you may have issues if you're selling your current home. A basic rule of thumb is to add a few months to whatever firm closing date you are given. We have bought new twice and the first time we were told November for closing, though June was the actual date. The second time we were told December and closed in April.
Even if your unit is finished on time, you could be moving into an unfinished building. Generally, Toronto condos are built in stages, so many owners move in while other units are being finished. This means living with noise, disruption and inconvenience for awhile. Make sure that is something you are prepared to deal with.
Are there advantages to buying a resale condo?
Of course, as with anything, there are advantages and drawbacks. One of the best aspects to a resale condo is that is has a history. You can talk to people who own condos in the complex, as well as directors of the condominium board. You can ask detailed questions about the reserve fund and what major expenses can be anticipated and when.
Any real estate agent worth their salt will include a clause in your purchase agreement making the deal dependant on your approval of the condo documents. You will be able to review the condo board's annual report and read the last two years' worth of minutes to owners. You can go over the financial statements and examine the condo bylaws. This can alert you to potential problems, such as leaking roofs, break-ins of units or cars or pending lawsuits.
You should get your lawyer to go over the condo documents, since they are experience in the field of real estate law. They know what to look for and can give their approval fairly quickly. This should be included in your agreement with them to handle your sale, but even it is not, it will be a few hundred dollars well spent.
With an older unit, you can see what you're buying. And the rooms tend to be larger. One of the trends in today's Toronto condo market is make units smaller and smaller. With the way condo prices are rising, the only way to keep them affordable is to make them smaller. Plus, builders want to squeeze as many units into a building as possible, to make more money. After all, they are a business and they want profits.
Financially, resale Toronto condos have a couple of other benefits. There's no GST included in the purchase price, though you may not notice this discount as taxes are built into the new condo price, not added afterwards. Deposits tend to be lower, as most Toronto condo builders are now asking for more and more money up front. What good is a zero down mortgage if the builder requires you to put 25% down?
But remember, buying a resale condo means that you do not get warranty protection from Tarion — it only applies to new construction. Depending on the age of the unit you are contemplating, there may still be some warranty left (some coverage extends to 7 years) and it stays with the unit.
Tarion provides a warranty against construction defects in your condo unit or on common elements of the building. It's one year for most defects, but two years for the mechanical and electrical systems, the building envelope and water penetration, and seven years for major structural defects.
So you won't be covered by Tarion, but that measn you don't have to pay for coverage. Tarion involves a one-time enrolment fee that starts at around $375 for a $100,000 unit and goes up to $862.50 (tax included).
Which is right for you?
Now that you have read about the different benefits and drawbacks regarding Toronto condos, both new construction and resale, you have some homework to do.
You need to get out and start checking out the areas where you might want to live. Once you have found some neighbourhoods that appeal to you, see what is available. Contact a real estate agent have them take you around, both to the resale units and to the new construction sites.
Many people feel that they don't need a realtor to visit new sales centres, but nothing could be farther from the truth. They likely have experience with the builder, or know more about them than the average person. They have dealt with a lot of purchase contracts and can alert you to potential problem clauses. Real estate agents know about Tarion and how it works and can advise you of your rights. Realtors have relationships with various lawyers, mortgage brokers and other professionals whose services you will require when you buy.
Once you have selected an area in which to live and know the options available there, you should be able to decide what is best for you. Keep in mind everything you have read here and you should be well on your way to buying the best Toronto condo for you.