Real Estate Update

Posts Tagged ‘Buying’

Purchasers, first-time home buyers especially, generally lack the knowledge to determine what they can afford when it comes to buying real estate and how the purchasing process actually works.  Here is a step by step list on how the condo purchase process works:

1)      Start by getting pre-approved by your bank or a mortgage broker. Knowing what you can truly afford gives you a starting point and a price point to search within. After all, it would be very disappointing to find a home you love only to find out it is not within your financial means.

2)      Find a Realtor (Real Estate Sales Representative) you trust! This is very important as you will be sharing personal information about yourself with them. Talk to your Realtor about what you are and are not looking for in a property.

3)      Now the fun begins. Once you’ve been pre-approved for a mortgage and you’ve found your trusty realtor, your realtor will then begin showing you properties of interest.

4)      While on the showings, scrutinize each unit. Think about the location, building amenities, the potential future value, the unit layout and of course the price.

5)      Once you’ve found the unit you would like to purchase have you Realtor research what the unit is actually worth and carry out their due diligence.

6)       Now its time to make up the offer. Have your Realtor go through the offer with you. You may also want to have a lawyer review it.

7)      Your Realtor will then submit the offer to the Listing (Selling) Realtor who will then contact the seller to review the offer. The other party has a set time period, called the irrevocable date, to either sign back or accept the offer. Within this irrevocable time, the buyer is held to the agreement.  If the irrevocable date passes without contact from the seller, the deal dies and neither party is held to the agreement.

8)      Once the buyer and seller have come to an agreement regarding the price and conditions the deal is now either sold firm ( no conditions) or sold conditionally ( usually conditional upon arranging financing or lawyers review of the status certificate).  If sold conditionally, the buyer then has a certain time frame, as set out in the agreement of purchase and sale to waive the conditions. Once the conditions have been met, the buyer signs a waiver which then makes the deal firm.

9)      On occupancy is when the buyer and seller meet with their respective lawyers to exchange the property keys for payment. The title of the property is then switched over from the seller to the buyer and the buyer is then given entry and ownership to the property.

Buying real estate is an exciting process. It can also a stressful and complicated process so it’s important to hire a Realtor you trust. After all, buying real estate is one of the largest investments you will make. 

When buying a Toronto condo, it is important to take into consideration the additional costs of the transaction other than the purchase price itself. So many times I have buyer clients looking to purchase real estate in Toronto yet they forget about all the additional costs that go along with the purchase.  Put aside some additional cash for the following one time expenses:

1)      Lawyer fees – Your lawyer will charge you for the closing fees and title insurance if you elect to purchase it.

2)      Adjustments – Depending on what is in the agreement of purchase and sale you may have to pay for property tax, hot water tank adjustments etc.

3)      Land Transfer Tax Fees- Buyers of real estate in Toronto must pay the Toronto Land transfer tax and the Ontario Land transfer tax (for purchases only). If you are a first time buyer, you will get a break on the tax.

4)      Moving expenses – Don’t forget about the costs of hiring movers and a moving truck, and if you are moving into a condo then you may have to pay a fee for booking the condo elevator.

5)      Services such as the TV, Phone, and Internet must be set up.

6)      Home insurance

Once the transaction has been completed, there are other expenses to consider as well. On top of your every day living expenses budget for the following:

1)      Monthly mortgage payments

2)      Annual property tax

3)      Monthly maintenance fees – monthly common expense plus reserve fund

4)      Utilities – Don’t forget about the monthly water, heat, hydro and central air bills. Some condos cover all or a portion of these.

When it comes to purchasing a condo unit, many of my buyer clients ask me which is the better choice, buying a resale or pre-construction unit. The difference between the two being that one already physically exists and the other one does not.  Deciding which route to take depends on a few factors such as timeline, motive and capital.

When purchasing a resale condo unit there are no surprises; what you see is what you get. You know exactly what you are getting into as you can physically visit the unit, see what finishes have been used, know how the management is running the building, etc. Generally speaking, items such as window coverings, light fixtures and built-ins are left behind by the sellers which are a bonus. Another positive aspect of buying resale is that a buyer is able to visit multiple units in different locations before making a decision to see which one best suits their needs. The down side of resale is that you are not the first owner of the unit and some prep work of the unit may be required before move in.  

On the other hand, when purchasing a pre-construction condo unit, you are essentially buying an idea and not a tangible item as the condo doesn’t physically exist yet. Instead of visiting the unit, you visit the sales center where you purchase off of a floor plan where you must visualize the space you are purchasing. The nice thing about buying pre-construction is that you are the first owner and everything is brand spanking new.  By the time the builder has sold enough units to start construction and construction has been completed, it isn’t until years later that you are actually able to move in. If you are looking to move into a condo unit immediately or within a short time period, then resale is the way to go but if you are able to wait a few years and have a flexible timeline then pre-construction may just be what you are looking for.

The next thing to consider is motive. What is your reason for buying a condo unit? Is it to reside in or to flip? When buying a resale condo unit, you can potentially move in immediately whereas if you buy pre-construction you must be patient and flexible as the original occupancy date will most likely fluctuate. If it’s an investment that you are looking to get into then pre-construction may just earn you that extra cash you are looking for.   When buying pre-construction, you buy at today’s market price so depending on the market situation when you buy versus when you sell determines whether you make a profit or loss.

Finally one of the most important elements of buying a condo unit is the cost and if you can afford the financial obligation. In either situation, a down payment must be made. In resale, on average a 5% down payment is given as a deposit with the offer. Depending on what has been arranged with the bank, a further deposit is paid to the bank upon unit closing. This deposit amount can vary from 5% down to 100% down, in which case a mortgage would not be required. When you purchase a pre-construction unit however this flexibility is not allowed. The builder has strict deadlines when deposits must be made. Usually a deposit is made with the initial signing of the documents, another one upon closing and then a few others in between which usually totals about 25% down.

A condo can be a great investment and a great place to live whether you purchase resale or pre-construction. Choosing which route to take depends mostly on your urgency to move but also on your financial situation and your reason for buying. In either case take the time to determine which route makes the most sense for you.

If you have purchased or are thinking of purchasing a pre-construction condo in Toronto, then I’m sure you have plenty of questions. Here are a few common questions that I am asked by clients regarding purchasing pre construction real estate.

Q. Can I choose my parking spot and locker location?

A. If you have a disability or have a medical condition and need preferential parking then advice the sales rep at the time of purchase and they will try to accommodate you as much as possible. If you do not have a special requirement, then parking and lockers are assigned on a random basis.

Q. Do I need to purchase insurance for my condo unit?

A. The building insurance is provided by the condominium but owners must have insurance on their personal property, contents and any improvements that may have occurred that are above the standard finishing’s of the condo.

Q. How do I book the elevator for move in?

A. Contact the property management for booking the elevator. Many times, owners will have access to an Intranet where they can book items such as the elevator or party room, obtain parking passes, etc.

Q. What does interim occupancy mean?

A. Many people don’t know this but when you buy pre construction, there is a period of time where you may have to pay a fee called an “occupany fee” to the builder. This monthly fee is paid to the builder until the building registers with the Land Registry Office. You are able to occupy the unit during this period but technically do not own it yet, until the date of closing.  This fee can be compared to rent as it does not go towards your mortgage and is based on the unpaid balance of the purchase price, estimated land taxes and estimated common expenses (maintenance fees).

Q. Are the Builder Agreement of Purchase and Sale documents standard?

A.  No, every builder has their own agreement which was prepared by their lawyer so it’s important to have your lawyer fully review the document. Make sure all details are in writing and never rely on verbal agreements.

Q. If I sign an Agreement of Purchase and Sale for a pre construction condo can I change my mind?

A. After signing the Agreement of Purchase and Sale, you have a 10 day cooling off period (don’t confuse this with buying resale real estate, this is only for pre construction). During this time, have your lawyer review the documents and obtain the necessary financial confirmation that you need. If you decide with in the 10 days that you do not want the unit anymore, you are able to cancel the agreement and get your deposit back – but this must all be in writing. Once the 10 days passes, you are bound to the agreement of purchase and sale.

Q. Can the condo builder or myself ever terminate the agreement of purchase and sale once it has been agreed to and the ten days has passed?

A. Once and agreement of purchase and sale has been signed, the price of the unit agreed to freezes. If however the agreement includes an “economic liability” date and a certain percentage of sales has not been achieved by a certain date, then the developer can cancel the condo project.

Q. When can a builder start construction on the new condo project?

A. It maybe months or even years before the builder can begin construction, depending on when you signed the agreement of purchase and sale. Before the builder is able to start construction, there must be a certain percentage of binding sales agreements so construction really depends on how quickly the project sells. A lot of the time, the estimated occupancy date set out by the builder at the beginning of the project is a very optimistic timeline.

So you’ve made the decision to purchase a pre-construction condominium. Now here comes the hardest, but also more important decision -choosing the right floor plan. It is important to choose a layout that will accommodate your personal needs but will also prove to be attractive to potential buyers in the future.

One of the most important features to look for when considering a floor plan is the location of the windows in the unit. It is always more attractive to have windows in all the bedrooms and is a proven fact that natural light increases the resale value of the unit. Corner units typically have twice the amount of natural light which an extremely attractive feature for future buyers but beware of oddly shaped corner units.

One aspect that is often overlooked when choosing your unit is the actual location of the unit within the floor plan. A unit within close proximity to the elevators can prove to be very frustrating as noise levels tend to be high. This brings me to my next little piece of advice. Stay away from the garbage shoot! Many purchasers have been disappointed to learn that once they have moved into their condo they are constantly bothered by the sound of the garbage falling down the shoot. This has proven to be a larger problem for residents on lower floors especially when the garbage shoot runs behind their laundry room, which they typically do. Always ask your sales representative to show you the unit location within the entire floor plan.

When choosing your floor plan don’t forget to take into consideration the closet and storage space. Builders today are building taller condos however actual unit square footage is getting smaller. With smaller square footages, large closets and storage spaces come in handy, especially if owning a locker is not an option.

Being able to make good use of your space is extremely important when choosing your floor plan. This leads me to my next tip on choosing a functional layout. Even though pie shaped units or units with sharp angled walls have a dramatic architectural effect, they are extremely difficult to furnish and create a lot of wasted space. Evenly shaped rooms, such as squares or rectangles do not present this problem as they make furniture placement a lot easier and makes the space more useable.

Take into consideration the above mentioned tips when buying a pre-construction condo. The beauty of purchasing pre-construction is that you can choose the floor plan you like so why not choose smart?