A Spring Team Client Weighs in on His Pre-Con Purchase Experience!

Pre-construction condos are a great way to enter the real estate market in Toronto (especially in urban communities like Leslieville where supply is limited). There are a ton of new mid-rise buildings like The Wonder Condos (Have you registered with us yet?).

Developers are understanding the need for larger spaces that current buildings simply don’t offer. Result? You can stay in the neighbourhood you love for less than the (min) million bucks needed for a house.

Buying pre-construction lets you “lock in” a price now, and not worry about increases in the market, choose your own finishes, and select from a large supply of available floor plans (most types of plans aren’t even available with current resale supply).

So, why isn’t everyone opting for pre-construction? Well, the process of buying pre-construction is a bit more complicated than with a traditional resale unit.

We asked John Papamarko, a freelance digital content strategist (Spring Team staff writer), Spring Team client and friend who just went through the process of buying a pre-construction condo what he learned over the past year. Here’s what he had to say…

TIMING

Ara let me know that from the time you put down your first deposit, to the time you move in could be in excess of 4 years! Be aware of this. Thankfully, I have t-shirts older than that, so I was definitely ready to commit to a pre-con build. I was happy in my rental, and had a great landlord. I knew that even if it took longer than expected, which it did, I could continue renting month to month and not stress.

If you have a place to sell then the timing discussion is a lot more important. You’d have to discuss this on a case by case basis.

THE BUYING PROCESS

This can be a very fast and stressful process (especially if you’re not working with a pre-con expert like Ara).

Each developer/sales team has a handful of brokers they trust to bring qualified buyers to the table who’ll actually firm up the units they sign up. TheSpringTeam is one of those groups that have earned the trust of developers so while other Brokers might claim to have “access” it’s not their level of access.

Sales happen by worksheet submission OR by allocation. A worksheet submission allows you the opportunity to sit with the Spring Team, go over all the plans and submit your favourites. Ideally top 3 to make sure you get what you want. Because of The Spring Team’s early access this process has to happen on one day, and it has to happen fast!

An allocation is different but more limited. This means a developer has decided to give their top brokers a handful of units to sell. Only those ones. If what you want doesn’t match up with what the broker has been given, then you’ll have to wait and see what comes back on sales day. Stressful!

10 DAY COOLING OFF PERIOD

Although you need to make a fast decision, that doesn’t mean you commit yourself to a purchase that you may regret. Thanks to the Consumer Protection Act you have 10 days (not business days) to back out of your deal for any reason. Simple.

PAYING YOUR DEPOSIT

A deposit schedule is a timeline of payments a buyer pays to a developer to secure a pre-construction unit. The amount is usually 10-20% of the purchase price spread over a set schedule and will be included as part of your down payment upon closing.

The amount and timeline vary depending on the developer or project, so make sure you know your timelines and have the cash readily available. If you miss a deposit because you have to move money around, you’re gonna have a bad time and it’s going to cost you.

A typical deposit structure looks like this (this is the structure for Wonder Condos anyway):

• $5000 when you sign the deal
• 5% in 30 days
• 5% in 90 days
• 5% in 240 days
• 5% in 540 days

FANCY CONDO PRESENTATION CENTRES

Presentations centres are a sales tactic, which means that big $$$ goes into making them look sexy as hell. Don’t get sucked into a slick presentation centre, because they have no connection to what your building and unit will look like.

However, do pay attention to floor plans, finish options and the model suite. But, make sure you do some independent research. For example, most model suites are professionally designed with condo sized furniture to maximize space, and often showcase upgraded appliances, tile, cabinetry, etc. Always ask questions, and double check in the paperwork.

Honestly, the presentation centre issue is quite unimportant for us because our access is so early for most developments that the sales centre isn’t even open when we give you the opportunity to purchase.

PARKING AND LOCKERS

It’s pretty rare to find a pre-construction condo with a parking spot or locker included in the price (rare is an understatement), and in many buildings, parking is not even available for purchase for units under a certain size.

Lockers will generally run you about $5000 extra, and parking between $30,000-$60,000. I know it hurts to spend that kind of cash on a place to park your $8000 Kia, but you can at least roll that cost into your mortgage, and in my opinion, parking is pretty valuable from a resale perspective. 

CONDO FEES

Monthly maintenance fees are calculated based on your unit size. They average around 50 – 60 cents/sq ft. for a new build condo, but can be higher based on a number of factors such as shared building amenities.

Also, if you purchased a parking spot or locker, there may be additional fees levied to maintain these outside of the general pool. I pay an extra $48 a month for parking spot maintenance which sucks, especially on top of paying big $$$ for the parking spot itself, but it’s cheaper than dealing with parking tickets for the rest of my life.

PDI

Your PDI is your pre-delivery inspection. It’s when you first see your finished unit. Exciting! You’ve waited a long time for this, but try and be cool, as this isn’t an MTV cribs tour, it’s business time.

This is your opportunity to go through your unit and make sure that everything is as it should be.

Run the water, flush the toilets, bring a phone charger or something to check all the outlets. Make sure that the finishes you chose are the ones your builder has installed. Be nit-picky!!! This is the last time your builder will address deficiencies before you move in. They will still fix issues during the interim occupancy, but who wants a bunch of trades traipsing through their unit when they’re trying to enjoy their new home?

INTERIM OCCUPANCY/OCCUPANCY FEES

Today’s the day! The day you meet with your lawyers, sign some paperwork and pick up your keys, but not likely the day you move in. The amount of notice you get before your occupancy date is too short to pack, hire movers, or even book the elevator in your new place. (Yes, you HAVE to book the elevator. Don’t be a dick to your new neighbours)

During the interim occupancy, you pay occupancy fees to the builder. Sadly none of this monthly fee goes towards your mortgage.

The interim occupancy fee is comprised of three things:

1. The amount of interest on the outstanding amount due (at a rate your builder decides, and unfortunately, you don’t have any influence over).
   So if you bought a $500k place and put down $100K you still owe the developer $400K. Calculate the mortgage payment at 5% then extract the interest portion of that payment  and there you go.
   To make is super clear, the monthly payment on a $400K mortgage with 5% interest is: $2,147/mth. The interest portion of that payment is $1,667. Make sense?
2. Condo fees. You’ll know exactly what your day 1 condo fees will be by looking at the Condo Declaration. You’ll be able to do this BEFORE you commit to the purchase at the very beginning.
3. Property Taxes: This is one that is frustrating because they way over estimate property taxes at 1% of the purchase price. So a million dollar place is estimate at $10K/yr? C’mon!
   If you look at the City of Toronto property tax rate you’ll notice that it’s 0.6355054%. Then that $1mm includes HST so take that out and you’re not paying 1% on a million, rather, you’re paying .6355054 on $884,845 which is a much less painful $5623/yr. Almost HALF of their estimate! 

REGISTRATION

This is when your mortgage kicks in about 3-6 months after the occupancy period we discussed earlier. The city has signed off on the completion of your building, and the builder can discharge their mortgage, install your property management company and move on to their next project. Today’s the day you start building equity, AKA, the day you can finally start paying your mortgage, but it’s also the day you must pay your closing costs. Those suck. 

CLOSING COSTS

Closing costs, are anything and everything associated with the purchase of your pre-construction condo. Builder fees, development charges, land transfer taxes, lawyers fees, and any myriad of other fees and charges, so it is nearly impossible to predict how much this will be in advance.

My closing costs included a $250 deposit cheque fee (to have someone take them to the bank, apparently). $500 to connect to the city sewers (not sure where my washroom pipes would have emptied to if I didn’t pay that). A dozen or so infuriating nickel and dime fees, which in the bigger picture of a new condo are small, but still terribly annoying.  

So, how do you budget for these fees? Negotiating a cap is crucial in saving you money. Ara was able to negotiate a cap on my development charges and saved me over $15,000 in closing costs! Thanks Ara! That’s partly why i’m happily writing this article for the Spring Team. I owe you!

Thank you so much for your attention! Hopefully you found this content useful. If so, make sure you’re subscribed to the industry’s “least spammy newsletter!” to be kept in the loop. We’ve got some great resources for Buyers and Sellers here too, so check that out and keep in touch, will ya?

Don’t forget, you can always call, text (416-434-1511) or email (ara@property.ca)  if you have any comments or questions. Also, feel free to comment below!

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