Not all condos are created equal that’s why you need to understand the differences between buying a new condo versus buying a resale condo. House hunting can be an exciting yet frustrating process so you should be educated and aware of the whole picture before you decide on which one to buy. Knowledge is power and getting your ducks in order by speaking with some professionals before you jump into an offer is imperative. Here I have provided some information to hopefully shed some light on purchasing a condo in today’s condo market.
My article highlights some facts you should know before you choose. It should also help you understand how buying a condominium differs from new to resale.
Buying a New Condominium
If you can wait to move in, plan to accumulate a higher down payment or if you are buying an investment property for future use than buying new may be right for you. Property equity will usually increase with time so buying new condo with a scattered 20% down payment is almost like a forced savings account, a good thing for any homeowner. Developers will often offer “pre-construction” pricing for new condominiums before construction begins. Purchasing at this phase does has its advantages such as purchasing below market values at that time, being able to request design changes if not structural as well as choosing colours, trim and upgraded finishes just the way you like. Do not forget that new condos are subject to undetermined or not capped builder closing costs and fees that are typically clarified in the original agreement of purchase and sale. Your lawyer should be the first one to review the entire agreement including the new home warranty documents and request to the builder any changes, alterations or caps to any builder closing costs and fees at time of future closing. You only have a small window of opportunity to do this very important step!
Buying a Resale Condominium
When buying a resale unit you are seeing what you’re buying. Space, layout, size and location are clear. You can see the common areas and elements live as opposed to the builder’s renderings. Buying resale means no builder closing costs or fees as these were charged with the original purchaser and cannot be charged again. Regarding financing you are usually able to secure a current mortgage interest rate taking that “future interest rate speculation” off the table entirely. Regarding legal fees to your lawyer’s office your closing costs may also be lower with a resale unit. The status certificate (Condo Docs) is a package of legal documents that usually includes the condo bylaws, regulations, rules and information about the condo corporation’s reserve fund, property management contract, property insurance and any outstanding judgments if any. Your lawyer will review these documents so you should make your offer to purchase “conditional on a satisfactory review” of these documents. Seller should provide these when your offer is accepted as this is time sensitive material that needs to be reviewed by your lawyer.
Pros and Cons of Buying a “New Condominium”
New Condo Pros
- Potentially lower priced (based on market conditions).
- A greater choice of units within the same building.
- More of a choice of options and/or upgrades.
- New home warranty protection.
New Condo Cons
- You must rely on artist sketches and floor plans (which may very well change before completion).
- Your initial deposit (usually up to 20% will be held with the builders lawyers until completion.
- Current lower than average interest rates cannot be held for longer than 120 days so your rate at closing may not be guaranteed.
- Construction may be delayed so your closing date may not be as expected.
- At time of “occupancy” or when you move in you will not be paying down a mortgage but will be paying an “occupancy fee” directly to the builder until the building is registered.
Pros and Cons of Buying a “Resale Condominium”
Resale Condo Pros
- What you see is what you get.
- Usually closes within 30-120 days of purchase date.
- Down payments can go as low as 5% for qualified buyers.
- You are able to see the “condominium community” before you buy to see if the corporation is well run and the occupants that currently live there are compatible with your needs and lifestyle.
- Some older condominiums may be larger than new.
Resale Condo Cons
- More often than not you are unable to choose finishes and décor
- Older resale condominiums may need upgrading or repairs to common areas as opposed to new ones.
- Some amenities may not be available such as a workout room, whirlpool, security or guest suites.
- Older units are usually not as energy-efficient as newer units.
- If major repairs are on their way due to dated windows, roofs or other common areas bin need of maintenance than your maintenance fees will most likely increase in the near future if they haven’t already.
- Usually no new home warranty exists if older than 5-7 years.
Pre-Qualify Before You Buy
Know where your purchase power stands when it comes to your current income versus your current debt load. Before you speak to any realtor or start to view properties you should absolutely go through the prequalification process with a knowledgeable experienced mortgage broker who understands condominium transactions. 5% is currently still an option for some on resale units but the maintenance fees and property taxes must accurately be included when your affordability is calculated. This will enable you to shop in confidence when you clearly understand all associated costs and fees when purchasing any type real estate.
If you are buying a pre-construction condominium I would strongly advise you take advantage of the builder’s on-site mortgage program if available. The bank representing the builder’s project may offer a “capped rate” program that could secure a fixed rate and even guarantee it for up to 24 or 36 months. This would work to your advantage if mortgage rates are soon to be on an upward swing which is highly likely in our current interest rate environment. You should still want to speak to a mortgage broker at time of registration closing as their offerings would be on behalf of many lenders and not just one.
If purchasing an existing resale condo then you can take advantage of any lenders “quick close special” often offered by most lenders. Your mortgage broker does this work for you as they represent you to several lenders and not just one bank.
Condominium Maintenance Fees
The condominium owner must pay a monthly fee that is equal to the units’ share of the overall operation and property maintenance cost of all the common property areas. This can include parking facility, elevators, grounds keeping, pool, gym etc. A portion of your monthly fee is set aside for your contribution for the corporation’s reserve fund. This would cover the costs of major repairs and major replacements of the common areas over time like windows, paving, the roof etc. this monthly fee is calculated based on the size of your unit multiplied by the price per square foot. For example if your condo is 750 sq feet and the “current” monthly condo fees are calculated at a rate of .65 cents per square feet, your monthly maintenance fee would be $487.50 per month
When renting a property you usually will not pay any property tax as this is the responsibility of the land owner and would be included in your monthly rent but when you own your own condominium you are directly responsible for paying the monthly or annual property tax above and beyond your mortgage payment and maintenance fees. This can be paid directly by you or you can instruct your mortgage holder to collect it when your mortgage payment is due and pay on your behalf. For brand new condominiums the lender will usually use 1% of the purchase price to establish your annual property tax at closing but only until the municipality assesses the property market value.
Utilities are usually never included in your monthly maintenance fees and usually include Electricity, water and natural gas.
In conclusion I suggest you do your homework, do the math, talk to the pros and understand the condo buying process. This will make your journey to condo ownership more exciting, more knowledgeable and ultimately guarantee a successful soft landing. Feel free to contact me directly!