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Part II: Top 10 Mistakes Buyers of Pre-Construction Toronto Condos Make

Part II: Top 10 Mistakes Buyers of Pre-Construction Toronto Condos Make

This week, we’re looking at the biggest (and most common) blunders made when buying pre-construction Toronto condos.

In Part I of our two-part series, we talked about common financial mistakes #1 through #5. Today, we’re looking beyond the hard numbers that apply in virtually all cases to the more idiosyncratic issues. These are the ones that can really get the blood boiling if you find yourself caught in one of these condo conundrums.

More Mistakes Made When Buying Pre-Construction Toronto Condos, ctd' from Part I...

Mistake #6: Assuming the Plans Won't Change (or Won't Change Much)
Six50-Condos

Six50-Condos

This is a big one and perhaps the most emotionally-fueled aspect of buying pre-construction. How many horror stories have we heard about buyers not getting a product that's even close to what they signed up for on paper from a design perspective and/or getting shoddy construction and sub-par materials that don’t come close to the model suite?

Not to mention all of the other things that can go wrong including major delays or full-on cancellation of a condo project .

Just search "Toronto condo class action lawsuit" and you'll find a ton of buyer beware stories; some of the biggest battles being fought now are by Toronto lawyer and condo owner advocate Ted Charney including suits against Freed Developments by owners at six50 King, pictured above, and against ELAD Canada Inc. by owners at Emerald City . Audrey Loeb at Miller Thomson is also doing some great work.

Until recently, buyers have been left with very little recourse thanks to air-tight legal disclaimers in those pre-con contracts they signed. But this wave of class-action law suits (if owners win and set a precedent) along with new elements in the updated Ontario Condo Act (which is not law yet; the Act is still to be passed) should help protect buyers more moving forward. But even then, it's not a cut and dry situation.

You have to understand that you're buying on spec. This is not a finished product - it's not even a finished design or conceptualization - so don't assume that you're going to get what you think you've bought.

Mistake #7: Not Bringing in Your Own Realtor This is a really easy mistake to make because most buyers don’t realize that it’s not going to cost them anything more to bring their own Realtor to the negotiation table.

New-Toronto-Condo-Graffiti-Loozrboy-flickr

New-Toronto-Condo-Graffiti-Loozrboy-flickr

It’s baffling to us why a buyer would choose not to do this. We’re not suggesting that all pre-con sales staff are out to screw you – there are a lot of great Realty firms out there who deal almost exclusively in pre-construction sales. But their loyalty is to the developer and, ultimately, themselves. Rarely are they going to put a buyer’s interests above their own if it's going to cost them thousands to do so.

If you’re set on buying pre-con, always bring in a condo expert who’s on your side to negotiate for you. We have Condo PROs who have done countless pre-con deals and have saved tens of thousands for their clients by ensuring certain fees are capped and reducing or eliminating extras like builder’s fees. So, not only will it not cost you anything to take this extra step, it will likely save you a substantial sum.

Don’t leave money on the table by being too laissez-faire about negotiations, no matter how nice and accommodating everyone seems at the sales office. Bring in an expert to play hardball.

Mistake #8: Planning for the Life You Have Now This ties into a problem we featured in Part I of this series – when people lose money because they sell too soon. We can’t tell you how many times this has happened. We’ve worked with so many clients on the re-sale end who are selling their brand new unit that they can’t, or don’t want to, move into.

Sometimes it’s because of major lifestyle changes (for example, they got married in the interim or had a baby), sometimes it's because people change and that shoe box in bustling King West that appealed to you at twenty-five isn’t really your thing anymore as you approach thirty.

We urge all of our clients who are set on buying pre-construction - whether it's as an investment property to flip or rent out or as a place to call home - to buy for a life you can grow into and not your current situation. Now, that's really hard to do and it's rife with risk, particularly when it comes to the financials (e.g. assuming you'll be in a higher paying position by time of occupancy).

Yet another reason why buying pre-construction is generally more hassle and more risk than it's worth. It's so much safer to purchase a newer, re-sale unit now or if you can’t afford the down-payment, take a few more years to save as you’d be waiting out this time for construction anyway had you purchased pre-con.

Mistake #9: Assuming You’ll Qualify for a Mortgage
condo-mortgage

condo-mortgage

You may be buying three, four, even five years out when buying pre-construction, despite whatever timeline the builders give you, and you’re buying based on the assumption that you won’t have any issues firming up a mortgage when the time comes.

Even if you’ve done the legwork to see if you pre-qualify for a mortgage, no bank is going to guarantee you a mortgage that far out. Situations can change (you could lose your job, get divorced, become self-employed, etc.) making you a risk from a lender’s perspective, not to mention issues that may arise with the developer or project itself that may make it a red flag building for banks. There are plenty of cases where buyers lose their initial deposit or worse for failing to close because they can't secure a mortgage.

While this “mistake” can’t be avoided when buying pre-con (there’s no way to secure a mortgage this far out), we strongly advise that you speak with a mortgage broker (try James Harrison over at mortgages.ca ) before your 10-day cooling off period comes to an end. This way, you can at least ensure that you fit the profile to qualify and that you’re taking the right steps at the right time before your closing date arrives.

Mistake #10: Assuming “New” Means “Turn-key” Our final and most gut-wrenching mistake when it all goes wrong is the assumption that buying new means buying problem-free. In reality, it can be quite the opposite. Construction and design flaws abound in new construction condos and buyers really just have to keep their fingers crossed that they're not hit with the big ones like structural issues.

Problems happen to even the most seasoned of buyers; nobody’s immune. Have a watch of this CBC investigative Doc Zone special The Condo Game to see what our friend and fellow Toronto Realtor David Fleming recently went through with his pre-construction condo. It underscores just how difficult it is to predict these situations and why buying pre-con is so dangerous.

If you flip this around and think about your alternative - buying re-sale – some of the benefits of buying an existing condo are that a) you’re seeing and touching a finished product and can get it inspected before firming up your offer and b) it’s been “running” for some time and so issues that tend to crop up within a season or two post construction are likely to have surfaced already.

With pre-con, you’re rolling the dice based on nothing more than the builder’s reputation – yet another reason why you need to consult your own Realtor because a Google search isn’t going to reveal all of the inside information the industry has on a particular builder’s reputation and history.

The good news is that all new construction condos are covered under Tarion for a full year. The bad news is that dealing with developers to resolve issues even when covered under Tarion can be a nightmare. Not to mention the time it takes. You could end up taking weeks of time off work in Year 1 to be home to deal with major issues like water damage that, if not nipped in the bud quickly, could easily domino into further issues.

If you find yourself in this situation, it’s smart to pay extra to have your unit inspected by a qualified and unbiased third party inspector twice: first, at time of occupancy and, if problems have arisen and been addressed by the developer, inspected again before your Tarion protection expires to ensure that the issues have in fact been resolved properly.

Why Buy Pre-Construction Given the Excellent Stock of Re-Sale Condos? The bottom line is, if you’re paying the same or more to buy pre-construction as you would to buy a similar re-sale condo plus taking on a huge amount of financial and emotional risk, why would anyone do it?

Lack of awareness of these issues and a dash of naiveté (or blind faith) are probably the main forces at play here. Don’t be a statistic. Do your research, consult experts who work for you, not the builder, and if it seems too good to be true, steer clear because it almost certainly is.

All of that being said, there are obviously some attractive benefits to buying pre-construction otherwise no one really would do it; we talked about this in our previous article about the rare occasions when it does make sense to buy pre-construction . Something to keep in mind if you're set on a particular pre-construction building: buying while it's under construction, say, less than a year out from occupancy, can definitely help reduce some of the risks you'd face buying into the same project earlier during the pre-construction phase when you're buying off of a rough concept in a project that's likely not even fully financed yet.

And remember, the industry wasn't always like this. There was a time when there was a healthy profit to be made buying pre-con and builders generally delivered what was promised. So we know it can be done. But we won't see change until buyers start speaking with a closing of their wallets, opting instead for much safer re-sale bets.

Read Part I of Top 10 Mistakes Buyers of Pre-Construction Make

Lead image of downtown Toronto condo construction © Reza Vaziri and photo of construction sign image © Loozrboy both used via Creative Commons from flickr. Mortgage denied image © Stuart Miles from Shutterstock.