Whether you are a first time buyer or a seasoned investor, anyone buying a brand new condo needs to use extra due diligence. In some cases, the complex will already be finished, but, in other cases, there may be merely a hole in the ground, and one is buying from a drawing. In any case, questions need to be asked. Here follows some advice, tips and questions to ask when buying a brand new condo.
Salespeople vs realtors
Unlike realtors, builders are not bound by the same codes of ethics. This means that staff in a show home are salespeople. In essence, it is the same as stepping into a car dealership or a furniture store. The salesperson works on commission and sales targets are the main goal. Realtors, on the other hand, are licensed and need to adhere to a code of conduct. They need to work in the best interests of their client, the buyer.
Show homes are showrooms
Show homes are just that, showrooms! Everything shines; all colors and materials compare to the latest fashions in the latest glossy magazines. Show homes are always decorated by professionals to excite and mesmerize you and make you buy, buy, buy… Therefore, try to look past the shine and polish.
Be aware of pressure tactics
Only 3 units left! Buy now and we will throw in an upgraded dishwasher! Leave your realtor at home and you’ll get a better deal! Again, salespeople are trained to sell and meet sales targets. Buying a condo is not a short term purchase but a commitment with many ‘strings attached’. Take your time and get informed because one mistake is costly.
Recognize the real forecast
Research the builder and developer
Knowing the builder and developer gives a buyer the opportunity to research them both through previous projects. What other projects did this developer take on, and how were these projects rated? Does the developer have experience with high-rises and/or townhouse complexes? What quality did the builder deliver previously?
In all fairness, it is not always easy to find reliable and correct information on developers or builders. However, one good option to research any history of a condominium is to consult with a realtor. A realtor can look into the history of those condominiums that were built by the same builder. This history can reveal if there were any special assessments in the past, and what the issue(s) pertained to.
Builder’s contracts are written up by the builder
The standard purchase contract, in Calgary provided by the AREA, is only valid for the purpose of resale condominiums. Builders create their own contract written up by the builder’s lawyer. This means that the purchase contract is mostly in favor of the builder, and not the buyer. It is always good practice to have your realtor and lawyer look over the contract to learn its ins and outs. Following are just a few examples of items in a builder’s purchase contract to pay attention to:
- When is possession?
- What is included in the price? Appliances? Window coverings?
- What happens if the builder cannot deliver the unit on time?
- What is the deposit structure?
- What are the guarantees and warranties?
- Which documentation does the builder provide, including such items as the bylaws and the condominium plan?
- What is the proposed landscaping?
- Will parking be titled, assigned or leased?
- What building materials are used?
- How will substitution of used materials be handled?
Guarantees and warranties
All new builds in Alberta are subject to the New Home Buyer Protection Act. Every structure, both single family homes and condominiums, must be registered in the Public Registry of Builder & Property Information.
In a nutshell, this warranty covers:
one (1) year on labour and materials- 2 years on defects in distribution systems such as plumbing, heating and electrical
- 5 years on the building envelope
- 10 years on the major structural components such as foundation and frame
What materials are used?
Show homes are ‘picture perfect’. Often, here, the most expensive materials are used, like granite countertops, stainless steel appliances and hardwood flooring. Be aware of the materials that are included in the purchase price. For example, the price may not include granite countertops but laminate countertops instead. Also, what options are there for wall and floor finishes, cabinets, and plumbing and lighting fixtures?
What upgrades and changes can you make?
What amenities are planned?
What amenities are available, and which amenities are important to you? A concierge, a gym, swimming pool, tennis court, roof top patios, guest suites, dog runs, elevators, a car wash and bike storage are a few examples. Because amenities do cost money, ask yourself if they are worth the condo fees that reflect them. Concierges and swimming pools are expensive, yet worth it to some.
What is included in the condo fees?
Another important point to consider is what is included in the condo fees? Think of the utility cost of water, heat and electricity. Some condominium corporations also offer internet access. Further, also consider maintenance cost for snow removal, landscaping, amenities like elevators, a parkade, swimming pools, gyms, etc. The more amenities, the higher the condo fees.
Condo fees will go up, guaranteed
Builders keep condo fees low during the sales. These low condo fees are often not realistic. This is a typical sales tool because low condo fees make a unit more attractive to buy. Once all the units are sold, a new reality may set in when the condo board’s use of fees becomes the owner’s responsibility. The building will need maintenance and repairs, now and in the future. The reserve fund needs to reflect these future maintenance costs. Therefore, oftentimes, condo fees need to go up, sooner, rather than later.
Parking, storage and elevators
Most units come with one parking spot, sometimes two. Some parking is underground, some is located above ground. It is important to ask these questions to avoid surprises on parking locations.
Elevators are common in apartment buildings. Ask how many elevators are planned, and make sure that the number of elevators are sufficient to carry enough commuting traffic in the morning and evening. Also, make sure that the locations of the elevators are within acceptable distances from the units.
Resale value
The resale value of a condo is very important and involves many different aspects. Most buyers understand that location is one of the most important features that can affect resale value. However, there is so much more to resale value than location. Other considerations of resale value are the location of the unit, the views, amenities, layout, materials used, etc. A realtor can help navigate the subject of resale in combination with today’s value.
Deposit
It is normal practice for a builder to ask for a deposit. The deposit is, in essence, good faith money. It gives the builder assurance that you will purchase, and the builder cannot sell the unit to someone else. This deposit must go into a trust account which offers the buyer protection, in case the builder, for example, goes bankrupt.
Cooling off period
Regrets? The Condominium Property Act of Alberta states that a buyer has the right to cancel the purchase within 10 days after signing the purchase contract. A buyer does not need to indicate a particular reason for canceling. This means that just regret is a valid reason to withdraw. If you want to cancel the purchase, make sure to receive the correct paperwork and have everything checked by a real estate lawyer.
The pros and cons of buying new vs resale
Buying new vs resale comes with some pros and cons. A few examples of advantages to buying brand new are:
- You can often choose from various layouts and therefore choose the layout that suits you best.
- The same goes for choice of unit location within the building, the direction the unit faces, and on which floor the unit is located.
- Also, materials and color scheme choices are sometimes options for the buyer.
- New buildings are generally built with the latest features, for example high efficiency materials and new technology, such as charging stations for EV’s and smart home gadgets.
- Another advantage is that new builds fall under the New Warranty Home Building Program.
- Price increase can be an advantage. When prices go up, the condo will be worth more by the time you take possession. However, this may be just as much of a disadvantage, in case prices decrease.
The disadvantages of buying brand new
- Buying real estate via only a drawing is not easy for everyone. For some, it is difficult to visualize how the project will look when it is finished.
- Also, layout and measurements are not easy to read and grasp for everyone, yet are very important.
- There is less clarity about condominium fees. As mentioned earlier, builders often keep the condo fees low during the sales, and they have to be increased once homeowners take over and a board is established to ‘run the building’.
- Any structure needs settling. Potential issues with the building often arise some time after the condo complex is finished. A building that is a few years old already shows issues if there are any.
- It may take a long time for a building to be move in ready, and lenders are not always willing to issue a mortgage.
- Also, someone’s life plan can take a different turn, and then the buyer is stuck with a binding contract to purchase a unit.
- Your deposit is ‘out of pocket’ for a long time.
- Construction may create delays, and you may need to find alternative housing for a time.
- When the market starts to struggle and declines, the value of the unit may be less than what you paid for it. This happened in 2007 when new condo buyers had to walk away from their purchases because the value dropped significantly.
Extra closing cost
Bring your realtor
It is strongly recommended to bring your own realtor. As mentioned before, a realtor is licensed and represents the buyer during the process of buying. A realtor also has the experience to look for aspects that a buyer without experience wouldn’t think about in terms of resale such as location, value, the added value of upgrades, etc. As well, a realtor is able to negotiate on your behalf.
Most builders still pay the realtor a commission for bringing the buyer. However, the buyer must enter the sales office with a realtor at the first visit. If the realtor is not present at the first visit, many builders take that opportunity to waive your rights to have your own representation. Or, at least, a builder will not pay the realtor any commission, meaning that the buyer pays the realtor out of pocket. How much commission a builder pays varies. Always discuss this with your realtor before entering the show home.
Sometimes a salesperson will tell the buyer to ‘get rid of’ the realtor to get a better deal. Realize the ethics that this action shows. The promise may be a free washer & dryer. However, the value of a realtor is often much more than just the value of a washer & dryer.
Consult with a lawyer
A lawyer is part of the process when buying any kind of real estate. It is wise to involve the lawyer from the first contact with a builder and get the lawyer to read the purchase contract before signing anything. Also, sometimes builders offer the services of their lawyer. Never use the lawyer of the builder. If any issues arise, it is never in your best interests to get advice from the seller’s lawyer. Calgary has many real estate lawyers, and, most likely, your realtor can suggest one.
Want to learn more about the resale value in a condominium? Check Tips to buy a new condo with resale value in mind. Published next week.