Buying a condo – read the fine print

If you’re thinking of purchasing a condo, there are a few things you should know before you buy.

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Chartered Accountant Jennifer Chasson, President, Chasson Financial in Toronto advises all prospective condo owners to research, research and research! “Buying a condo is different from buying a house. With a condo, you are purchasing one unit in a condominium corporation that is governed by legislation. Buying a brand new condo from blueprints is also different than buying an existing condo.” According to Chartered Accountant David Krigstin, Partner, Krigstin & Krigstin LLP in Toronto, first-time buyers must understand current market conditions and the mortgage process. “Right now it’s a buyers’ market, and understanding that market helps you make informed decisions about price and eventual resale value. What is the median price in your desired area? Are prices increasing or decreasing? What is the average number of days on the market and the average number of sales in your area?”

Be financially prepared

“Start by determining your budget,” Krigstin continues. Limit your housing costs to 25 per cent of your gross income, and set aside the equivalent of at least three months of living expenses to cover any unforeseen costs after the closing. Factor in any hidden costs in your budget. These include the monthly condo fees (which can be a big surprise when you find out you pay them on top of your mortgage payment), utility fees, property taxes and homeowners’ insurance.

Understand the mortgage process

Educate yourself about the mortgage process and understand what is involved, as well as how much you need to borrow. Krigstin advises that you obtain pre-authorization for a mortgage. Meet with a financial institution or mortgage broker to determine the amount they will lend you. Don’t be afraid to push back, and be ready to shop the mortgage rate around to other financial institutions. Even a half-per-cent reduction in the rate can save significant interest. Read the mortgage agreement to understand its terms, including how much you can pay down your mortgage in a given year without incurring penalties. Consider negotiating a more open mortgage. Question any additional or unnecessary fees, such as levying a fee to check your credit rating. “Also understand the purchase contract,” Krigstin says, “which is usually a standard form, and question or remove any terms you don’t like. As part of your due diligence, consider consulting a real-estate lawyer, who can suggest terms to include or delete.”

Due diligence for new condo

Whether it’s a new or existing condo, make sure you understand what you are buying. “If you are purchasing a new condo from blueprints, check the developer’s reputation,” says Chasson. “Is this a first-time builder in Ontario? Check the Tarion Warranty Corporation, which licenses all home and condominium builders in Ontario and notes any claims against them. “Read the Disclosure Statement. This outlines the builder’s intent and process, including building timelines. Ask questions to determine the project’s viability, especially in a slow economy. Are the units selling? The building may not attract enough pre-sales to get the required financing to build – yet your money is tied up in a deposit. Can you get your deposit back during the sales period?” Check the operating costs. These are estimated by the builder, who is responsible for any overages in the first year only. When condo owners assume these costs in the second year, these costs may escalate, especially if the builder has underestimated them.

Due diligence for existing condo

If you are purchasing an existing condo, Chasson advises reviewing the audited financial statements and Annual General Meeting minutes to assess financial stability. This will also allow you to verify that the builder has fulfilled its various year-end obligations, covering items under warranty, such as ceiling cracks or structural problems with the building itself. Review the developer’s performance on outstanding issues, like puddling in the courtyard. Also check the Reserve Fund – how is the money being spent? “Finally, make sure you will use the amenities, such as a pool or fitness room – you are paying for them in your monthly maintenance fee.”