How to buy a condo

Craig Sebastiano’s first experience as a condo buyer was both exhilarating and annoying. The 35-year-old web producer knew what he wanted: a nice one-bedroom condo unit about a 10-minute walk from his job in downtown Toronto. He also wanted a workout room in the building so he could exercise late into the evening after long days at the office.

After months of looking, Sebastiano settled on a 650-square-foot unit in a building that hadn’t even broken ground yet: he bought it based on a floor plan. That was his first mistake. “The showroom model was a bit bigger than the condo I had bought, but the salespeople told me I would hardly be able to tell the difference,” says Sebastiano. “Well, my condo actually turned out to be quite a bit smaller than I had been led to believe. And it really wasn’t much like the showroom model at all.” Other details differed as well. Sebastiano was told he could move into his new condo in December 2004, but he didn’t actually get the keys until July 2006—19 months later. “I had heard stories of condo possessions being late—but not a year and a half. Even though I was able to keep renting my old apartment, it was frustrating.”

Finally, Sebastiano ended up paying a bundle in “occupancy fees.” When a new condo building is completed, it takes several months to be formally registered with the municipality’s Land Registry Office. You can live in the unit in the meantime, but technically you don’t own it yet. Until the registration goes through, you’ll pay occupancy fees—also called “phantom rent”—to cover the building’s costs, including property taxes. Usually this arrangement lasts three or four months, but in Sebastiano’s case, the payments went on for a year. “And they don’t count toward your mortgage,” he explains. “I wasn’t happy about that at all, but there wasn’t much I could do.”

Sebastiano’s story is as sobering as it is common. Condo lawyers can talk your ear off with stories about problematic and costly deals. It hasn’t helped that the market has been so hot in recent years—many buyers, afraid to lose out on a great condo in a prime location, have been pressured into making decisions that came back to haunt them.

The real estate market in most Canadian cities isn’t as frothy as in years past. If you’re a serious condo buyer, this is good news. It means you can wait for the right opportunity and not worry about bidding wars.

“Don’t rush into anything,” urges Nicolas Brunette-D’Souza, a real estate lawyer with Delaney’s Law in Ottawa. “There will always be a hot new building. Do your research thoroughly, because once you’ve bought, it’s a 30-year commitment.”

“A person will often go to Ikea several times before buying furniture,” adds Jeffrey Kahane, a Calgary-based real estate lawyer. “Yet you’d be amazed how many people look at a condo for 20 minutes and then write up an offer to buy. You need to put more thought into it than that.”

So let us help you put some thought into it. We’ll show you how to avoid the most common condo-buying pitfalls and end up satisfied with your new purchase.

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Make sure you’re a condo person
Before you even think about looking for a condo, ask yourself whether you’re suited to the lifestyle. That means being comfortable living with certain rules, and in close proximity to others. You’ll also need to make sure you’re okay with shared common areas and condo board politics.

Karen Martin, a lawyer in Vancouver, lived in a condo for 11 years before finally accepting that she wasn’t suited to the lifestyle. “When I bought the condo, I didn’t realize that you get no independence whatsoever when it comes to making decisions,” says Martin, 56. “If you’re in a minority in the group when something has to get done, such as painting, and you don’t like it, you have to suck it up.” Martin was also shocked at how dirty some of her condo neighbours were. Some even let their pets pee in the building. “You could voice your displeasure, but you couldn’t actually do anything to stop that behaviour. As a condo owner you’re always dealing with everyone’s petty issues. I reached the point where I had to move out to stay sane.”

Decide between pre-owned and pre-construction
If you purchase a pre-owned (resale) condominium, you’ll see exactly what you’re buying. You can shop around, walk through various suites and pick the one that best suits you. Even if it needs some work, you can be secure in the knowledge that you got pretty much what you expected.

If, however, you decide to purchase a pre-construction condominium like Sebastiano, you’re entering the unknown. Sure, you can view sketches in the sales office, but you have no idea what your unit will really look like once it’s built. Still, there’s an attractive trade-off: you’ll be the first owner of the unit, and everything in it will be brand new.

If you find it hard to visualize what your new space will look like, do what Brunette-D’Souza did when he was condo hunting: view similarly sized units in other buildings. “I set up viewings in older buildings with condos that were about 700 square feet,” says the real estate lawyer. “What I learned is that 700 square feet can be big or small, depending on how it is laid out. It gave me a feel for the type of space we were talking about when trying to chose a unit from a plan.”

Research the builder
If the building hasn’t been completed yet, take some time to do an Internet search on the builder, their past projects and any complaints about the workmanship. If it’s a resale, find out if the builder is still in business and whether the company is financially stable. If it’s no longer around, the condo board (the group of volunteers who manage the building’s affairs) may have no legal re­course if major flaws are discovered later on.

As well, try to get some feedback from people who have bought units from the same builder, either through Internet forums or from residents of the company’s other buildings. A high rate of people selling their units is a red flag. So is the fact that your builder is in court a lot. There are a few places you can go to look these things up: British Columbia has a Homeowner Protection Office where you can check whether there are complaints or lawsuits against a particular builder. J.D. Power and Associates ranks condominium builders in the urban centres across Canada using a five-star system. Or you could try your local Better Business Bureau or online forums where buyers informally and anecdotally discuss buildings and builders.

If you’re buying a resale unit, ask for the last two years’ worth of minutes from condo board meetings. They will give you a good idea of the types of problems you might be dealing with in the building.

To make sure your condo building (as opposed to your unit) is structurally sound, you may want to hire an home inspector. That’s what Pauline van Hemert and her husband Michael did when they bought their Vancouver condo in 2009. They had heard horror stories about leaky West Coast condos, so they hired an independent inspector (not one recommended by the real estate agent) to get an honest assessment of their individual unit and the overall building. “When we heard those key words from our inspector—‘You’ll never see a tarp on this place’—we knew it was the condo for us,” says Pauline. “We had another condo inspected in the past that turned out to be a nightmare, so we were extra cautious.”

Work with people who know condos
Hire a professional realtor to help with the buying process. Then speak with a mortgage broker (or meet directly with lenders) so you get a feel for the type of mortgage you will qualify for before you start your search. You should also make sure you have a good lawyer to review both the offer to buy and your financing arrangements.

It pays to use a realtor who has a lot of experience with condos, as they are very different from houses. “I spend half my time dealing with real estate agents who know very little about what’s involved with buying or selling a condo,” says Gerry Miller, managing partner of Gardiner Miller Arnold LLP in Toronto. “You can end up making some very costly mistakes if you rely on people who don’t pay attention to the details.”

For instance, Miller recalls a recent condo buyer who was relocating to Toronto in a hurry. He saw a large suite, loved it and asked his real estate agent to make sure it came with a parking spot and locker. (He was a big skier who needed a locker to stash his skis and poles.) Unfortunately, the agent didn’t ask enough questions. Once the deal was signed, the buyer discovered that his unit was in Phase 1 of the complex, his parking spot was under the Phase 2 tower, and his locker was below Phase 3. “When that buyer needs to get his skis, he has to take two elevator rides to get to his locker, then another elevator ride to bring them back to his parking spot,” says Miller. “He sealed the deal before dis­covering any of this and had to suck it up.”

Other oversights? Not all parking spots are the same size: some are slightly smaller because they are positioned next to a pillar. With one of these compact spaces, you won’t be able to open your car door without risking a nasty dent.

Pay close attention to the location of the unit itself. Do you want to live on a high floor or on a lower one? In general, the higher up your suite, the higher the price—usually between $3,000 and $8,000 more for every floor above the main level. Of course, you may want to pay extra for the better view. But if you’re on a limited budget, sticking to the lower floors can save you money.

Measure your unit
Before completing the sale you should actually pull out a tape measure and make sure your unit is as large as advertised. You would be amazed by how much the actual square footage can differ from what you were told.

Ken Grunberg, who works at a video production house in Toronto, found out too late that the unit he bought in 2007 wasn’t nearly as large as advertised. When he and his partner measured the area before replacing a linoleum floor, they discovered it wasn’t 700 square feet after all. “We trusted what the real estate agent said,” says Grunberg, 30. “But our condo is actually only 560 square feet if you don’t count the balcony and bathroom.” They ended up taking down all the walls in the unit, except for the ones around the bedroom, to get the feeling of spaciousness they wanted.

Know your closing costs
Closing costs can add roughly 1.5% to 4% to the purchase price of your condo. On a $400,000 unit, that’s between $6,000 and $16,000 on top of your agent’s fee. These costs may include a land transfer tax (an escalating levy that rises to 2% of the purchase price), a bank appraisal fee ($300), legal fees (roughly $1,200), as well as a high-ratio mortgage insurance premium, which is required if you make a down payment of less than 20%. That premium is hefty: it can make up 1% to 4% of your outstanding mortgage.

For pre-construction units, your closing date is the day the building is officially registered by the builder, which could be several months—or even years—after your occupancy date (the day you move in). If you buy a new condo from floor plans, you could be on the hook for two months’ worth of maintenance fees, plus occupancy fees until the building is registered, depending on your province. Only after the closing date will you begin paying down your mortgage.

Understand your legal obligations
Make sure all the details of your condo purchase are in writing and never rely on verbal agreements. Every builder’s Agreement of Purchase and Sale documents are unique, so it’s important to have your lawyer review them fully.

If you’re buying a pre-construction unit in Ontario you have a 10-day cooling off period, in Manitoba it’s 48 hours for a new or used condo. Use this time to discuss concerns with your lawyer and confirm your financing. If you decide you don’t want the unit anymore, you can cancel the deal and get your deposit back. But once that period passes, you’re bound to the agreement.

Jonathan Reilly, president of English Bay Law Corp., in Vancouver, points out a nightmare scenario that happened in Vancouver a couple of years ago. Shortly after the financial crisis of 2008, prices for pre-construction condos in several markets fell abruptly, in some cases by 20%. Many people in Vancouver watched as the price of their pre-built condos plummeted to the point where they would lose thousands of dollars. In some cases, lenders withdrew the mortgage pre-approval, because the condo was now worth less than the loan amount. The harsh reality? Those buyers still had a legal obligation to buy the condo units at the price agreed to: if they walked away, they would not only lose their deposit, but the builders could sue for the difference in price, Reilly says. “If you have to pull out of a presale contract, you’re often out of luck. The magnitude of the losses can be huge.”

Luckily, some builders did choose to renegotiate during the downturn. But other buyers lost their deposits and were sued, says Kahane, the Calgary lawyer. “There was a stretch in 2009 where people were calling my office every week for help. There was nothing I could do.”

Understand condo fees
The good news about condos is that you’ll never have to worry about replacing the roof or tinkering with the furnace again. But that convenience comes with a price: monthly fees. As a condo dweller, you own the inside of your unit. The outside of your unit and the land surrounding the building are owned collectively by you and all the other building residents. The general maintenance and insurance for these “common elements” are covered by everyone’s monthly fees, as are some—but not necessarily all—utilities. A portion of your condo fees will also go into a reserve fund, which is set aside for major repair and replacement costs that occur as a building gets older.

Of course, the more amenities your condo development boasts—24-hour concierge, upscale fitness centre, valet parking—the more you’ll have to pay. When he was shopping for a condo two years ago, Grunberg realized what a huge difference having fewer amenities made to the monthly maintenance fee. “Our condo fees were a low $330 a month when we moved in two years ago, and they’ve stayed low,” says Grunberg. “But I know another building nearby that has a huge greenhouse that’s expensive to maintain. The condo fees there are $900 a month for a suite like ours. That’s a huge difference.”

Also remember that the larger the unit, the higher the fees. In Toronto, as an example, typical condo fees for a pre-construction suite are about 55¢ per square foot of your unit for the first year. Builders guarantee that the maintenance fees on pre-construction units will not increase for one year after your purchase, but after that, don’t be surprised if they go up substantially. That’s what happened to Donna Brodie, an educational assistant in Ottawa. She and her husband, Alex, bought a condo a couple of years ago for her son to use while attending university. “The condo fees were a low $60 a month the first year, but the second year they more than doubled to $126,” says Brodie. “We were expecting an increase, but didn’t realize it would be that much. It can make budgeting difficult.”

Before buying, find out exactly what your condo fees include: some buildings include the utilities in the maintenance fee, while other buildings have the individual owners pay some of the utilities directly. With a pre-owned condo, determine how much the fees have increased annually since the building went up. In many cases, it’s about 2% to 5% a year, but the increases can be higher, especially in older buildings.

A word of warning: watch out for rock-bottom fees in pre-owned condos. They often signal that little maintenance has been done, so those expenses may come up shortly. “Walk through the building,” says Reilly. “Is the paint chipping? Are tiles peeling off the walls of the common areas? If so, those will probably need to be repaired and your condo fees will rise to accommodate that.”

Expect delays
It’s possible for many months—or even years—to pass before construction begins. That’s because there has to be a certain percentage of binding sales agreements before the builder can break ground. The estimated occupancy date set out by the builder at the beginning of the project is often very optimistic. Be sure to have a backup plan if you can’t move in on the day you were told.

Review the Status Certificate
The Status Certificate can help you determine whether the condo board is spending the residents’ monthly fees appropriately. This document will also tell you whether the present owner of your unit is up to date in paying all of his common expenses—this is important, because if a unit’s common expenses aren’t fully paid, you will be liable for them. (If you’re buying a pre-construction unit, the Certificate will usually be clear.)

The Status Certificate will provide a full look at the condo corporation’s financial affairs and rules that owners need to know. “It lets you know if there are any lawsuits against the corporation or any special assessments because of upcoming expenses,” says Gerry Miller. “Are pets permitted? Can you take out the carpet in your unit and put in hardwood? Can you rent out your unit if you’re not using it?”
You will be charged a $100 fee for the certificate, and it must be issued within 10 days of your request. Then you and your lawyer need to read it and the accompanying documents to ensure you are satisfied.

Know the role of your condo board
The condo board determines the monthly fees for all units, usually based on the size of each unit, the number of units occupied and the projected expenses for maintenance and repairs. Board members are elected by the residents: typically they’re people who are willing to contribute time and effort to make the building operate efficiently. Duties are both administrative and regulatory, and include the awarding of contracts for maintenance and repair of the grounds, ensuring a sufficient reserve fund for emergency repairs, hiring staff and setting codes of conduct for acceptable behaviour in the building. The board also serves as a kind of court of appeal when community-related disputes arise between residents. The more you know about your condo board, the better positioned you will be to deal with any issues.

While the condo board can help if you have a problem with your unit, they can also pose a problem if they or other residents don’t like your behaviour. “We referred to the board in our building as the ‘condo Nazis’,” says Karen Martin. “They were usually residents who had a lot of time on their hands and acted like hall monitors. They sat on the board and would basically spy on you. It was awful, and in my case, the accusations they made simply weren’t true.”

Ken Grunberg has had similar experiences with his condo board members. “I don’t quite feel like a 100% owner because of management. I had a bad experience early on when I played my music at 9:30 on a Friday night. I got a noise complaint and the board sent me a written notice. So yes, sometimes I feel policed.” The solution? Try to attend at least a couple of condo meetings every year so you are aware of the residents’ concerns. Many times that’s enough to avoid future confrontations.

Always think resale
Although you may live in your condo unit for years, there will come a day when you will want to sell. So don’t overlook the value of smart upgrades. If you’re buying a new suite, consider requesting stainless-steel appliances and granite countertops, hardwood floors, and quality lighting. And try to buy the largest suite you can afford. (Studios and one-bedroom suites are more difficult to resell.) Make sure to avoid units that look out over the garbage pick-up area or garage entrance, as well as suites near the elevator (more noise and pedestrian traffic). And if you can afford it, purchase a parking spot—even if you don’t drive. You can rent it out in the meantime, and when you go to sell your unit, it will be that much more valuable.

Sebastiano learned all of these lessons. Barely a year after living in his new condo, he looked out his window and discovered that builders were preparing to put another tower on the vacant lot next door, which would leave him with no view. So what did he do? He sold his condo and rented a pre-owned suite for a year in a tower nearby. “Before I bought another condo, I really wanted to make sure I would enjoy living there,” says Sebastiano.

The good news? He loved his new place. The fees were low, the amenities were great and it was still within walking distance of his job. After a year, he bought an 800-square-foot unit in the same building. “I grabbed it as soon as it went up for sale. And I plan on staying here for a long, long time.”

Want even more tips to shape up your finances? Join the Money Fit Club to curb spending, boost your earnings, lower your taxes and more!

Learn to tone your money muscles all year long with our interactive calendar and sign up for our weekly newsletter for advice straight to your inbox.