StoryLine By CondoNow
When a person is looking into purchasing a pre-built condo, there are certain expenses they should take into consideration. The first thing they will notice is that there is a significant difference with a pre-built condos deposit structure, compared to that of re-sale condos. A condo that has already been built usually requires a small deposit. Perhaps 5% when the purchaser signs the sales agreement. The main reason for this is that the closing date is usually quite close to the purchase date.
A condo that is yet to be built may require a deposit as high as 15% to 20%. With pre-construction however, a buyer does usually have the option to pay the deposit in installments and the payments themselves will extend over a much, much longer time period until closing.
While the fees in a new condo building may be lower than older condos, buyers should not expect this to last long. A specific fee that will be lower in the first year or two is the maintenance fee. The reason that these fees are so low is because management does not yet know how much it will actually cost to maintain the building; it’s outdoor areas and amenities. As a result, approximations are used for the initial fees until the true costs are fully understood.
The HST rebate on new condos is something that everyone who wants to buy a new condo needs to investigate. As long as the buyer is planning on living in the condo that they purchase, they should qualify for the HST rebate. As a buyer you should always consult a lawyer to see if their purchase will qualify for this type of refund.
There are also additional closing costs that occur when a buyer purchases a pre-built condo. These costs may include special assessments, HST on appliances and utility connection fees. Special assessments can occur at any time when there is a major repair that was not planned for or if the reserve fund gets too low. Many times these closing costs can add up to an additional 1% to 3% of the original purchase price. At the time of closing, a buyer may also be required to place two months of condo fees into the condo’s reserve fund.
Buyers should also be aware that they are responsible for their own legal fees. Most real estate lawyers will charge between $700 – $2,000 for their representation. This amount usually covers services, which include reviewing all the contracts and making sure that they meet the current legal regulations and guidelines.
Another fee that many buyers neglect to consider is property tax. Since the building is new, it can often take two years before a buyer will receive their first tax bill. That means that the buyer will be responsible for the two years of payments all at once.
Most buyers are going to need a loan in order to purchase a pre-built condo. Once a buyer has a mortgage loan in place, they will need to follow the payment plan that the bank has given them. These payment schedules will be set up so that a greater amount of the payment goes towards interest in the beginning of the loan and over time it will change so that more of the payment will be directed towards the principle amount that is due.
After a buyer owns the condo, they are responsible for everything that is inside the unit. While plumbing and electrical issues may be covered by the condo’s corporate insurance, the rest is the buyer’s responsibility. The purchase of an insurance policy can be a good safety net for a condo owner. These type of condo insurance policies will also pay if the damage to the condo owned has also spread and caused damage in other areas of the building.
Many buyers are not aware of all of these fees when they start looking into purchasing pre-construction condominiums. Everyone should make sure they understand their responsibilities before they sign any contracts, so that they are not later surprised with unexpected expenses than can affect the logic of their initial investment decisions.
