Buying a Condo
The Grid Guide to Buying a Condo
By: Denise Balkissoon
1. Why should I buy, anyway?
Really, the buying-versus-renting question comes down to philosophy. There’s financial philosophy, which pits those who think that renting is a waste of money against those who say that with discipline (and know-how), you’ll get a much better return sinking your down payment into other investments. The market is definitely unpredictable right now, and nobody wants to commit hundreds of thousands of dollars now only to feel like a sucker if prices drop by 20 per cent in the next year.
Then there’s lifestyle philosophy, as explained by our most cautious expert, analyst Ben Rabidoux, who believes that Toronto’s condo prices are in for a sharp correction, if not a crash. Even he says that buying property is about balancing economics with the desire for a home. “From a lifestyle perspective, some people are willing to take an equity risk for a little more stability,” says Rabidoux (immediately cautioning that a five-per-cent down payment is “the opposite of stability”). Maybe you want to ensure your kids a spot in a certain school, or maybe you’re tired of a revolving door of roommates. Maybe you just want this slice of the sky to be yours, right now. Just make sure you can afford it.
2. But is this a good time to buy a condo?
That really depends on your current financial situation. To start with, a first-time buyer shouldn’t be aiming to make huge bank. You should be buying a place to live in, one that you’re truly psyched about, in a neighbourhood you genuinely like.1 Those two crucial attributes are what the next owner will also want.
That said, some people should not be buying now, full stop. Finance Minister Jim Flaherty is waggling his stern eyebrows at Toronto condo buyers who are making five-per-cent down payments and signing up for 25-year amortizations. If that’s you, then hold on a bit. In a market where prices are dropping (or just flatlining), buyers with low equity are losing money. Condo prices have dropped four per cent in the past year, so someone who bought a $300,000 condo last year with a five per cent downpayment and 25-year mortgage has lost more in value than they’ve earned in equity.2
A sharp dive or a crash could cause a terrifying loss in value. In Florida right now, lots of people are stuck holding property worth way, way less than the amount they owe on their mortgages. “In that situation, property becomes a prison,” says Rabidoux. Say your company heads for a different city, requiring a fast move: You could be forced to sell at a loss and end up paying the bank to get out of your mortgage. This is why, if your down payment is tiny, you should not buy now.
For those with a decent stash (Rabidoux advises at least 10 per cent), the story is a little different. “It’s no longer a seller’s market, and there are some great opportunities,” says mortgage broker Kim Gibbons. With so many units for sale right now, there’s room to negotiate. Gibbons thinks prices will continue to drop, creating a full-on buyer’s market, while Andrew la Fleur, a realtor who specializes in the downtown condo market, considers the next six months a sweet spot, before prices swing up again in the spring. Either way, plan on staying put long enough to ride out a few market dips and rises, and to make the eventual moving costs worth it (property virgins get to skip the land transfer tax just one magical, special time).
1 The right ’hood: Andrew la Fleur says that east-side buildings like One Cole and River City offer “excellent value,” while Sharon Golberg points to Yorkville as a neighbourhood where buildings tend to retain blue-chip status.
2 Here’s why: That person put $15,000 down. A year’s worth of minimum monthly payments (about $1,500 at four per cent interest), has only earned $7,600 in equity. Meanwhile, their unit’s value has been reduced by $12,000.
3. What can I expect to pay?
Condo-research outfit Urbanation says that in the downtown core, the average price is about $658 per square foot for a unit in a pre-construction or newly opened building—or $394,800 for an average-sized 600-square-foot one-bedroom. For a unit in an older building, it’s about $581 per square foot, or $348,600 for the same amount of space. A 915-square-foot average Toronto two-bedroom is $602,070 new, or $531,615 resale. Keep in mind, extremely expensive luxury units skew these averages, and that parking will add at least $10,000.
4. How much are maintenance fees, and what do they cover?
Maintenance fees average 70 cents per square foot city-wide, so you’re looking at $420 a month for that 600-square-foot unit. They cover the cost of heat and water (electricity is usually extra), property-management and security fees, and daily upkeep of common areas. Fancier amenities mean higher maintenance fees, so think about whether you’ll really use that screening room. “Not many people use pools or yoga classes,” says Sharon Golberg, who has managed hundreds of units in GTA buildings. “That’s a very niche market.” He says a party room and a gym are worth having, but everything else is usually a waste. Golberg doesn’t think higher fees are a reason to avoid older buildings, pointing out that adding $10,000 to your loan to buy in a newer building with lower maintenance fees will end up costing extra dough in interest.
5. How much power does a condo board have?
A lot. The most important of its tasks is to hire property management. If it finds a company (or person) that’s efficient and cost-effective, the building will be well-kept and your fees will stay reasonable. If they fail on either count, it will likely cost you. And yes, the board is allowed to decree that bikes aren’t allowed in units, that only miniature dogs are welcome, and any other building-specific bylaw it likes, as long as it doesn’t contravene the Condo Act or the Human Rights Code. So thoroughly read the condo agreement—the legal document you have to agree to abide by when you buy your place. And don’t believe any agent who says not to worry, you can sneak in your Dalmatian.
WHO SHUT THE DOGS OUT?
Whether you’ve got an angelfish or an Alsatian, make sure you can have pets in the building before buying. Some Toronto condo boards keep animals—and their owners—on a very short leash.
7 Broadway Ave.: Talk about specific: This Yonge and Eg–area condo’s board of directors stipulates that its residents can have either one bird or two tropical fish in their living quarters. Oh, and no dogs allowed.
77 Carlton St.:
This condo’s stringent canine guidelines have become something of an inside joke in the Toronto real-estate community: The building’s board keeps an updated catalogue of the residents’ dogs, complete with names and pictures, and tracks the pups as they move on and off of the premises.
30 Holly St.: After Michael and Margarita Bazilinsky offered to pet-sit their friend’s parrot in late 2010, neighbours quickly complained about the bird’s squawking. The condo board found them in violation of the building’s strict no-pets rule, even accusing the couple of smuggling the bird out of the midtown building in a blanket-covered box on inspection day. After a highly publicized year-and-a-half-long court battle, the Bazilinskys settled with a payment of $1,500 to cover the board’s legal costs. The couple has since moved out of the building.
6. Why should I care about the building’s reserve fund?
If a reserve fund isn’t big enough to cover a specific job, like updating the elevators, a condo board can pass a special assessment, meaning that each owner is suddenly on the hook for a percentage of the cost. This also happens when there’s an emergency repair, or if a condo board is faced with a surprise expense, like a lawsuit. “Buildings that have glass falling off the terraces are a major concern for lenders. It’s a huge legal liability,” says broker Kim Gibbons. Both the Festival Tower, attached to the Bell Lightbox, and the Murano Towers, at Bay and College (buildings that have had incidents of falling glass), are facing $20-million lawsuits filed by unhappy owners.
Condo boards are required to do a reserve-fund study every three years to assess what repairs and maintenance will be needed over the next 30 years. When Denise Lash, a real-estate lawyer who mostly represents condo corporations and developers, gets a client’s status certificate, she compares the engineering report with the condo board’s plan to keep its reserve fund healthy. She decides whether the board is on top of the building’s long-term needs, and if the fund can bankroll the planned maintenance. “Make sure the building has a reserve-fund study, preferably done by an engineer,” she says. Andrew la Fleur suggests reading the minutes from the most recent condo board meeting. “You can find out what the real issues are, what the board is talking about,” he says.
7. How do I make sure my condo is built properly?
Even if your building is new, your developer has a reputation, so look into it. Lash recommends using Tarion, a private corporation that administers warranties on new residential properties in Ontario, and checks up on builders to make sure they aren’t doing anything illegal. Its website,tarion.com, will confirm that your builder is licensed in the province, show you how many buildings they’ve put up in the past decade, and how often Tarion has had to mediate warranty disputes. Market-research outfit J.D. Power also puts out an annual customer-satisfaction survey about Canadian builders, which is free on its website, canada.jdpower.com.
8. What are some signs that I should walk away from a unit or a building?
“One red flag is a history of above-average maintenance-fee increases,” says Andrew la Fleur. “Maintenance fees should rise at roughly the rate of inflation, so a 10 per cent rise every year for the past five years is a warning sign.” Ask the building’s property manager, or get your agent to look into a unit’s history on MLS. Sharon Golberg advises looking out for fast turnover in board members or property-management companies—ask other residents or security staff, or tell your agent to make finding out one of the conditions of your offer.
Word of mouth is an unbeatable source of intel, but as la Fleur notes, people aren’t going to bad-mouth their building in public since eventually they’ll want to sell. He does try a casual “So, what do you think of this building?” if he runs into residents during a showing, and says the offhand question can sometimes elicit honesty. The forums at urbantoronto.ca are also worth lurking in: The rumours are wild and the hyperbole intense, but that doesn’t mean it’s all lies.
9. What are the pros of buying pre-construction?
The main benefit is personalization: You pick the cupboards, countertops, floors, and other finishes, so it’s totally your style. “It’s a beauty contest out there,” says Sharon Golberg. “But bear in mind, it has a cost.” Buying pre-construction is appealing to those with smaller down payments, since the construction period provides some more time to save. When you buy pre-construction, you put down an initial deposit—your down payment isn’t made until the second closing, when the building is totally complete. Brand new buildings also tend to have low maintenance fees, at least for several years.
10. What are the cons of buying pre-construction?
The biggest drawback of buying new is that buildings very, very rarely open on time. Which means that not only will you have to keep renting (or living with your parents), but your deposit money will be tied up, not earning any interest, during months (or even years) of delays. There’s also the chance that a builder will make changes in your unit—most agreements say they can, at the very least, tamper with the layout.
Denise Lash reminds all of her clients who buy into new buildings that they have two closings, which can be expensive. After the first, or interim, closing, you’re on the hook to the developer for monthly occupancy fees1 that don’t go towards paying off your mortgage. There’s usually a couple months’ lag between that and the city’s inspection and registration of the building, which is the final closing. Be prepared to pony up for lawyer’s fees both times.
1 Occupancy fees include maintenance fees, property taxes, and interest on the unpaid balance of the purchase price of the condo.