Buying a Condo from a Builder? Here are some Tips!
Condo Fees / Maintenance Fees
Your condo fees after the 1st year of occupancy are almost guaranteed to increase. Many builders will advertise low condo fees to attract buyers. Many of the condo fees are determined at current market prices and don’t include inflation or future increases in utilities. 2 to 5 years down the road, once you finally move in, it’s common to see an increase of at least 5% and as high as 75%.
10 Day Cooling Off Period
From the day you receive your signed copy of the Agreement of Purchase and Sale you have 10 days to reconsider the purchase of the condominium unit. At this time, you should take advantage of this opportunity to speak to a lawyer and have him/her review the Agreement of Purchase and Sale. Within this period you have the right to rescind or terminate this agreement.
Surprise Closing Costs
The fine print in a builder’s agreement to purchase a newly constructed condo is not standard and varies from builder to builder. Be aware of “adjustments” that are chargeable on closing. These “adjustments” may include closing costs of legal fees, land transfer taxes, legal disbursements, education development charges and much more.
Occupancy Fees (“Phantom Mortgage”)
When purchasing a condominium you will generally be required to occupy your unit (“occupancy closing”) before the developer is able to transfer legal ownership. During this period before ownership of a condominium unit (“interim occupancy”), the developer may charge the purchaser a monthly occupancy fee. This occupancy fee is like paying rent. You are not paying off your own mortgage. You are paying the builders expenses which include: interest at a prescribed rate on the unpaid balance of the purchase price, an estimate of municipal taxes and projected common expenses contributed to your unit. The only way to avoid paying the full occupancy fee is to pay off the full amount of your unit. Instead you will only pay the common expenses and taxes contributed to your unit.
Room Sizes and Square Footage
Ensure the square footage and the room dimensions are included in the schedules of the agreement of purchase and sale. Having the square footage and the room dimensions in the brochures or sales packages aren’t good enough, ENSURE that they are in the schedules of the agreement of purchase and sale. Also, keep in mind the warranty program permits minor variances by builders on the square footage, approximately 2.5%.
Have a Realtor that is familiar with new condo sales assist you when purchasing a new condominium. This may be one of your biggest purchases in your life. Having a Realtor will help make this purchase smooth and less stressful.