How to Buy a Condo 101

With the right help, buying a condo can be simple and rewarding. But avoid these mistakes, or you could end up with a unit full of nasty surprises.

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.

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.”

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 dis¬covering 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.

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.

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.”

By Julie Cazzin

From MoneySense Magazine, April 2011

Why Owning Property Trumps Renting: Capital Accumulation.

Credit card balances, monthly line of credit payments, car loans, rent; any of these wonderful facts of everyday life are only too well known and give a certain connation that might resemble, to most of us anyway, climbing up an ever reaching hill, fighting insidiously to reach the top – but what a hill it is and often saving is a fleeting concept as debt reconciliation often takes priority.

That’s the beauty of living in a credit economy where money or rather the illusion or it, is all too readily available to us and saving often takes a back seat. Even in the recent recession, which we climbed out of faster than any other G8 nation back in October 2009, many North Americans in Canada and the U.S. are transfering 80% of their pay checks towards monthly debt according to a recent article by Megan Thee-Bredanin the New York Times.
But are we doomed to perpetually live in this cyclical lifestyle of barrow, repay... barrow, repay, often allowing our dreams of financial independence via saving and investing to wither away until that glorious a modest 649 ticket turns out to be worth more than a coffee and bagel - it may happen but don't hold your breath. Even still, money is only money and cannot grow on it’s own, it needs to be re-directed in order to provide an acceptable return, that is when we have money to set aside ofcourse but the amount needed to start working toward that 6 figure amount in your checking account is be less than you think, read on...
Investment vehicles exist for those with aspirations of having an investment portfolio that will make our hard earned money grow, from RRSP contributions or GICs, high-interest saving accounts or government bonds, to the more risky and often stress ridden stocks and IPOs. With interest rates so low, the mentioned options make little sense, with the high interest saving accounts producing about 4% and GIC’s even lower, your retuned, if any, barely covers inflation, presently at 2.5%; growth is at a snail’s pace, clearly not a money maker in any sense of the word. Mutual funds do perform better but management fees and taxes on gains often make any increase in return minimal. Besides, the bank is not going to lend you hundred’s of thousand in dollars so that you can put it all in a mutual fund and reek the benefits of a 3% return on that same amount, but they will with real estate via a mortgage and this is where benefit of owning property becomes apparent, in leveraging.

So, what’s the answer? How can one generate capital accumulation on the side that provides extraordinary returns, often far above many investment vehicles currently available? Well, I’ve already answered it above. The answer is none other than the acquisition of real estate, but before you can truly appreciate not only the financial benefits but the emotional as well, let me throw some numbers at you.

I recently had two clients who listed with me who were previously paying approximately $750 a month each (utilities included) to live in a downtown property near Spadina and College, while they were attending Ryerson University. This equates to $18,000 annually in rental payments, that’s $36,000 over the two year period; money that will never be seen again, in their pockets anyway.

With a little convincing, they decided to purchase a property rather than renew an additional two year leasing contract. They decided to put an offer on a very nice 2 bedroom townhouse in quieter King West Village and the property became theirs following acceptance of their offer.

If they had renewed the previous contract with their landlord for an additional 2 years, that’s another $36,000 that they would have never seen again, coming to a grand total of $72,000 over a 4 year period!

However, they didn’t renew, they bought and now own a beautiful townhouse in King West with only little down and total monthly payments of only $100 more a month via mortgage payments, maintenance fees, and property taxes, which includes security and beautifully maintained private parks.

Assuming current property appreciation rates, provided from the Toronto Real Estate Board, the average cost of a homes in the year 2004 was $315,231.00, in 2007 the average price rose to $376,236.00, and in today’s Toronto market, the average price for June 2009 has risen to $403,927.00.

Current property appreciation rates are at 4%, but in the downtown Toronto core they are above average due to population density and urban demand, that means if they choose to sell in two years time, their property would have increased in value by $24,000.00, not to mention that all previous mortgage payments made would come right back to them once sold, getting back exactly what they paid for plus the increase in property value. That’s a savings of not only the $36,000 that would have otherwise been given away to a land lord, but an additional $24,000.00 in profit which remains tax free as it’s their principal residence. This is only one example of many mind you, as I’ve helped clients in similar situations save their money and also profit from appreciation growth.

So what does all this mean? Simply that credit card balances, monthly line of credit payments, car loans, rent; all these factors are normal facets of urban life, except one hinders substantially our ability to create a solid financial foundation. The choice of owning instead of renting, not only shifts one’s place of residence immediately form liability to an asset but also effects one (i.e. YOU) and one’s family emotionally, and that may be the greatest benefit of all!

Christopher J. bogoros

Break free of Financial Paralysis by Leveraging Good Debt (vs Bad Debt)...

House and condo prices continue to rise as more and more buyers enter the Toronto Real Estate market and with inventories as low as they are, prices are being pushed upward, making an already robust real estate market even stronger. This coupled with an increase in consumer confidence according to the most recent economic report; the real estate market is literally at the helm of pushing our country farther and farther away from the grim clutches of Recession. If you’re a home owner, you can’t help but feel a little content about how the Canadian market is managing in comparison to the U.S. and how you’re home is appreciating while our country is still technically in a recession. But, not all of us are as content.

I have personally witnessed throughout the years, families, both old as well as new, all personal friends of mine that have been caught in the grid of financial paralysis. We live in an age of chronic capitalism, now more than ever, where the availability of credit is substantial and debt is almost common place. But what is financial paralysis and how does one get out it? More to the point, how can you avoid it, what are signs, and how can you put yourself in a position to grow wealth rather than debt but most importantly, how do you put yourself in a position to KEEP IT? It is my sincere intention, that in some way you relate to this article and apply its information in bettering the quality of life for you and your loved ones. Now, let’s continue…

This financial paralysis, as I like to call it, is a self accumulating economic creature. It comes quickly, as most of us know, non-threatening in the least and initially grows systemically from one financial obligation to another. This systemic growth is far more aggressive for those in more vulnerable positions such as pro-longed unemployment, according to an article featured in TIME magazine titled: “Depressed? Don't Go to the Mall”, where the onset of depression due to unemployment means more indulgences as a means of escaping realty if only for a short time such as aggressive shopping, most often followed by buyer’s remorse only to see that credit card balance increase or personal lines of credit reaching new highs and undiscovered heights. Savers are also at risk, as a large, hard earned savings account can nibbled away by the everyday expenditures of a social lifestyle, school commitments or quickly be cut in half by the larger, more profound purchases such as a trip to Europe or that car you’ve had your eye on.

Financial paralysis takes on full form when we find ourselves solely in a self-sustaining state financially; meaning 80% of our pay check goes directly to credit card payments, line of credit payments, car loan payments, and the infamous monthly RENTAL payments.

In the 1950’s the Canadian personal saving rate was roughly at 5%, today it’s roughly -10% for the average North American. Unfortunately becoming a nation of savers is easier said than done because our economy is (for all intents and purposes) structured in a way that it depends on us being a nation of wild spenders as opposed to rational savers. We are unable to get ahead because we are simply too caught up in the fiscal to-dos of everyday life and any owned investment vehicles are performing poorly because so little capital is funneling in. This is financial paralysis and the longer it sticks around the more you and/or your family are affected emotionally as well as financially in the long run.

So, how does was one escape the rusty shackles of debt, well sadly, debt will always be in your life but you can and must learn how to mold debt (i.e. Good debt vs. Bad debt)in a way that not only releases you from a life of financial stagnation but performs as the ideal investment vehicle, offering you a return of 4-10% annually on money that you are barrowed via a mortgage. This strategy is called leveraging and what you are especially doing is making money off of someone else’s cash. Just picture it, a 6% return on a home valued at $250,000 annually; that’s 15,000 in the first year. Oh and any all profits are tax free as it’s your principal residence (which means you live there; additional investment properties, such as a 2nd and 3rd home becomes another matter all together.

I’ve known families, who have been renting for over 10 years with nothing to their name because they have been paying someone else’s mortgage during that time. Over time, the appreciation that you gain from your home can be used to then purchase an investment property, then a 2nd, realizing soon enough that the shackles have fallen off and that there is a very BIG light at the end of the tunnel with capital that is ever increasing and a small financial empire taking form.

Whether you are a young investor, a recently married couple, a family currently renting for a number of years, or just a person who thinks their keeping it simple by renting, look at the numbers and ask yourself, if your grandparents or parents didn’t purchase a home what would they have to fall back on or have to pass on to you and their loved ones? Personally, my grandparents on my mother’s side, whom I love dearly, purchased a 3 bedroom detached home for $12,000 53 years ago, its current market value is $415,000. It is the biggest investment they currently own and it provides a phenomenal amount of financial and emotional assurance for not only them but my entire family, knowing that they have the financial reserves if needed.

For any comments or questions, please email me at info@bogoroscopany.com or you can reach me at 416.558.7362.

Christopher J. Bogoros

A Buyers' Survival Guide: The 3 BIG Steps to Home Ownership

So, you’re thinking of purchasing a property of your very own, one of the biggest financial decisions of your natural life, you’re excited; perhaps a little nervous about the process and wondering what’s next? Well, before we move on, allow me to be the first to congratulate you, owning a property of your own is a huge step forward both financially as well as psychologically. Now let’s get started!

The First Step: Mortgage Pre-Approval

For buyers, this is probably the most important as well as intimidating part of the buying process, arranging financing or in the initial stage, a pre-approval. It’s absolutely vital you get a mortgage pre-approval before looking to buy for many reasons: you immediately establish your available purchasing power or how much you can afford. This immediately narrows down the inventory of properties to a manageable amount that you can then choose from. In addition, you will get a guaranteed interest rate for 90-120 days from the your bank or mortgage broker, if interest rates go up, yours will be locked in and if it goes down you can get an even better rate. It’s a win-win situation!
To be pre-approved, you must complete a mortgage application and will require the following:

• Photo I.D. (i.e. drivers license)
• The amount and source of your down payment.
• Employment details (stability and duration of employment).
• Proof of income (T4, monthly statements or a couple of pay stubs).
• Debts and assets.

You will also need to decide how much of your savings you wish to use as your down payment. Many of my clients who are first time buyers take advantage of the 5% down incentive provided by CHMC, this has helped tremendously in getting a lot of buyers into the real estate market who would have otherwise not be able.
Once you have been pre-approved, you will have a clear picture of what you can afford and what your payments will be, allowing you to start looking for a home with confidence.

The Second Step: House Hunting

Probably the most exciting part of purchasing property is shopping for it. The average buyer typically looks at 7-12 properties before locating their perfect home and it’s a process where patience is most definitely warranted. I usually show my clients 4-6 properties in a day with lunch and a coffee break in between, properties are generally rated in terms of design/aesthetics, property potential, and location. But the following questions should always be asked when looking at a potential property:

• Does the age style of the home and layout of the community appeal to you?
• Is there good access to public transit and major roads?
• Are public parks, roads and sidewalks nearby and in good condition?
• Is there access to the amenities that are important to you?
• Are you close to family and friends?
• Are there medical facilities in the area?
• How do the municipal taxes compare to those in other areas?
• Does the area have the potential to increase in value/popularity?
• Are there any bylaws or development plans that could affect the desirability of the
neighborhood?

Presently, properties are coming and going quite quickly in the Toronto Real Estate Market due to lower supply and higher demand, once a property is found that meets all your requirements and more, it’s time to move on to the third generic step and quickly, making an offer.

The Third Step: Make an Offer to Purchase

Once you've found the property that you’ve been looking for, it then comes time for you Realtor (hopefully myself ) to draft your offer to purchase, detailing how much you would like to offer, the closing date, and any conditions you would like to include such as being able to first arrange suitable financing, or having the home inspected before the offer is finalized. Your offer should also list the items you want to have included along with the home (e.g. appliances, light fixtures, window coverings, etc.).

Your agent (me again) will present the offer to the seller, along with your deposit cheque (usually 3%-5% of the offer amount), which will be held in trust and applied to your down payment when the deal closes.

Don't be surprised if the seller doesn't accept your original offer. Everything is negotiable, so expect some bargaining. As you Realtor, I will advise you on various bargaining techniques to ensure that you get the best possible price as well as the most favorable contract terms when closing.

Once both parties are satisfied and your offer is accepted, it becomes a binding contract between you and the seller. Upon the closing date, the property legally becomes yours and either your lawyer or Realtor will have the keys ready for you to pick up in person. I always tend to do the honors of personally delivering the keys to my clients and congratulating them on the purchase of their new home; Truly, the best part of my job!