Let’s begin with the understanding that the condominium industry is the same as any other – the vendor wants to charge the maximum possible for their product, and the buyer wants to get the best product they can for the lowest price possible. The vendor and buyer will then enter into negotiations and reach a mutually agreeable deal.

..while developers have lots of experience selling condos, buyers should invest the time to educate themselves and understand what they’re buying and at what price.

The thing is, while developers have lots of experience selling condos, buyers often don’t invest the time to educate themselves and understand what they’re buying and at what price. Let’s take a look at the details and talk about some things to watch out for.

Understanding the Sales Agreement

Make sure the agreement is what you think it is, and get it in writing. It’s okay to ask for written confirmation of anything that the salesperson promises. Take pictures of any samples that may be on display at the sales office. Read the sales agreement thoroughly to make sure it matches what your understanding of the purchase is. We’ve seen sales agreements revealing that a unit is on a much lower floor of a building than had been agreed upon (resulting in a lower resale value).
Understand your rights and procedures regarding construction delays. Occupancy isn’t always later than expected, but it can be. Developers don’t always have control over this – there’s lots of reasons why construction could face delays; from trade union strikes to the weather. Examine the purchase and sale agreement to find out how long the occupancy date can be delayed without penalty, as you may have to pay to live elsewhere for longer than you think.

Having trouble understanding the Sales Agreement? Contact us and we will help!

Understanding First Year Condo Fees

There are a number of ways that condo fees (the technical term is “common element fees”) for a building can surprise first time buyers.

 ..is the developer paying for complimentary concierge service for the first year? If so, expect much higher common element fees in the second year when the cost is added to the budget

Here’s the questions you should be asking:

1. Are utilities included in condo fees? Make sure you know if utilities are included in your common element fees or separately metered for each unit. Just because there’s a gas or hydro amount in the budget doesn’t mean it’s for units – common areas require heat and lighting as well.
2. Is the developer covering any operating costs for the first year? If they are, expect a big jump in condo fees for year two. For example, if the developer is paying for complimentary concierge service for the first year, expect much higher common element fees in the second year when the cost is added to the budget. And remember, if the condominium corporation decides to spend money on something, you have no way of individually opting out.
3. Does the first year’s budget take everything into consideration? This is a tough one, but external factors beyond the developer’s control can have a large and unexpected impact on what common element fees will end up at. For example, the implementation of HST in 2010 raised the cost of running a condominium building but wouldn’t have been included in developer budgets when someone bought a condo unit in 2008, before construction even began. Their fees would end up higher than expected! Another example is the city of Toronto’s decision to bill condominiums for garbage removal. Depending on the size of the building, this could have added as much as $20,000 to the common element fees, but wouldn’t have appeared on budget estimates made before city council changed the policy.
4. What is the escalation clause in the disclosure statement? In most disclosure statements there is an escalation clause that allows increases to the first year’s common element fees. It’s usually a percentage a year from the anticipated registration date, usually equal to the cost of living allowance, but we’ve seen it as high as 4% for every year that occupancy is delayed. We’ve seen as many as 4 years of delays. Check the numbers on this, or your first year’s common element fees could be a lot higher than you expect.
5. What is the reserve fund contribution for the first year’s budget? The Condominium Act of Ontario stipulates that all condo corporations must have a reserve fund set aside for major repairs or replacements. It is standard practice in the industry for developers to budget the legal minimum of a 10% contribution in the first year. When the first year is over and the reserve fund study is completed, the board very well may decide a 10% contribution is inadequate to the building’s needs, and raise owners fees to compensate.

Conclusion

Condominiums are an excellent form of ownership, and can be an excellent investment, but as with everything else it’s critical that you do your homework and buy smart! There’s nothing worse than buyers remorse. Ask the questions, invest the time in learning how things work, and you may find yourself looking back on one of the best decisions you ever made.