Buying Resale Condominiums - Things To Consider
Saturday Jan 25th, 2020
I have already written a blog about buying preconstruction condos, in this blog I would like to point out certain details of purchasing a resale condominium, in some aspects buying precons and resale are the same, and differ quite a bit in others. For the most part the approach of the investor and owner occupier will be very similar as well. I will be addressing number of points, some more important than others, all worth considering.
This applies to every real estate category, commercial, residential, office, industrial, there is not one more important factor than the location, pretty self explanatory and condominiums are no different. Consider access to public transportation, walk score, access to restaurants, shopping, highways, crime rates, hospitals, etc.
It is also important to consider not only what is in the adjacent area now, but also what will be there in the future as this may have a significant impact on your enjoyment of the property and the value in the future. Planned subway or public transportation will have a positive impact, so will a large employer moving into the area, university or a new shopping mall, on the other hand a new nuclear plant, new airport (despite being a large employer or a public transportation), or a noisy fire hall, may affect the values negatively.
Seasoned investors and buyers will seek out areas that have not arrived yet, are in the process of gentrification, or there is a potential for gentrification due to new developments etc., by identifying these areas you will have a chance to purchase less expensive property and reap financial benefits down the road.
Unit layout is definitely subject to preference and you won’t find one layout that will please all, but following are some of the things I would like you to think about before making the decision.
- Usable space – in my opinion usable space became more important as the units get smaller, and with increasing real estate prices small units will be a standard for the units coming into the market. You can probably have some wasted space in a larger home, it may actually add to the grandeur, emphasize wants v needs, you can probably have it in some of the larger condos, 80 square foot of wasted space will not make much difference in 2500 square foot house, but it will sure make difference in a 600 1 bedroom condo, and even more so in 350 square foot studio. The prime example of unusable space is a narrow long hallway, you really can’t do nothing with it other than hang the wall art and walk right by it. Remember your monthly condo fees are based on your total unit size, not on the usable space size, you will be continuously paying for space you have very little use for.
- Interior rear bedroom v exterior wall bedroom – in my previous blog I have written about rear interior bedrooms and what is allowed to be classified as a bedroom in a condominium. In my opinion, as well as opinion of number of people in the industry and many buyers, the bedroom facing the exterior wall with a proper window is still preferred.
- Functional kitchen – many owners and renters in the downtown area may not have a time or desire to cook, after many hours at the office take out is a good option, with that said the kitchen will be used, some will use it more than others, look for sufficient prep space, good size appliances. Personally, I like a U shape kitchen with counter space which can also serve as an eating area, eliminating the need for a dining table, and will also crate a nice separation from the living area.
- Long and narrow – quite common in new projects, in order to squeeze in as many small units as possible the developers will build long and narrow units, often the kitchen will be covering whole wall all the way to the outside window. This layout in my opinion creates many challenges, your sitting area or a sofa will be very close to the stove and other appliances, the counter space will be very limited, and the distance to the TV on the opposing wall will be minimal. Spaces which are more square are more functional allowing for easier placement of furniture’s.
- Dramatic angles and curves – oval glass windows and dramatic angles add interest and drama, but do they make the furniture placement more challenging and layout less functional? Quite often yes, square spaces are most user friendly yet sometimes boring, if the developer can combine form and function you will have a winner, if form takes over the function you may have a beautiful place that is not livable.
- Natural light – majority of people prefer plenty of natural light, let’s face it, it makes us feel better, if your property has floor to ceiling windows with plenty of natural light you can always close your blinds, not the case with opposite, you can’t get more natural light with small windows. The developers understand it and try to achieve it as much as possible, the demand for large windows is there, floor to ceiling glass is stunning. They don’t come without their own challenges and issues as glass is less insulated than concrete walls creating environmental challenges (as well as birds hitting the windows), there have been cases of glass falling down and we don’t know exactly the costs and time before they will fail. These challenges however are a topic for another discussion.
- Ceiling height – not exactly a layout issue, higher ceilings such as 9 or even 10 feet don’t create functional space or better layout, they only marginally increase storage (kitchen cabinets and closets), but they do create a feel of spaciousness and airiness, it simply makes the space feel bigger than it really is, quite often will also provide more natural light since the windows will be bigger.
- 1+1 – not a math lesson here, just simply a common description of one bedroom + den. In Ontario, unlike for bedrooms, there is no regulations regarding dens, they can be spacious enough to fit a bed, or small nooks you can barely fit your shoes in, units with den sell for more than without den, when looking at 1+1 ensure the den actually will be big enough to be functional as an office etc.
Location in the building.
We have briefly touched on the location of the building, now let’s talk about location in the building, this is also very important.
- Floor – very important factor, if buying from the developer you will pay premium for higher floors, the reason is that on the low floors you will hear more noise from the traffic, your view will likely be obstructed, you may get less natural light because of the surrounding structures blocking the sun. The only downside of high floors is when elevators stop working, it’s a bummer to walk up 30+ sets of stairs. Pay attention to the actual floor, if buying unit 3012 doesn't necessary mean you are buying on 30th floor, many buildings have strange floor numbering, sometimes they start with whatever number the developer seem fit, ofther there are no 13th floor, or any floor with number 4.
- Penthouse – a unit on the top floor, no surprise quite often these units are most expensive in the building, carry the most prestige, carrying from my previous point regarding floor premium you will pay the most for penthouses and having no neighbours above you.
- Corner units – these units also offer many benefits and are at a premium, you will have a neighbour on one side only, quite often corner units will have more natural light since you can have more windows.
- Elevator – elevators make noise, not every building will be properly soundproofed to dampen the noise as the elevator moves between the floors, if your unit is next to the elevator shaft you may be hearing it. Not only that, people waiting for the elevator will be talking and making noises, door will be closing and opening all the time and each time they do you will hear a ding, on occasion someone will hit your door with a cart or a suitcase. If possible, avoid buying a unit that is right next to the elevators.
- Garbage chute – very similar to elevators, the impact will be noise, doors slamming, traffic in front of your unit.
- Proximity to amenities – if possible, avoid units which are on the same floor, just below or just above your unit. If you are on the same floor as the amenities there will be more foot traffic, more foot traffic means more noise as well as wear and tear in the hallways. Now imagine the swimming pool or a gym is right above your unit, you may hear pounding of the weight equipment on the floor, or if there is a leak from the pool you will be the first one to know about it. If your unit is just above the amenities you will likely be exposed to more noise.
Amenities – there are huge differences between the buildings in regards to what amenities they offer, some offer next to nothing, others have concierge, swimming pool, sauna, gym, garden patio, party and meeting room, the condominiums these days are not just a place to live, but a lifestyle, and there is plenty to chose from. Just the other day I visited a building downtown with a pool on the top floor (60+) with a spectacular view, others have a more modest pool on the first floor, and the more basic buildings don’t have a pool at all. In general, the more amenities the higher condo fees, every unit owner has to pay for the common elements regardless if they use them or not, just because you are not a swimmer doesn’t mean you won’t be paying for the pool maintenance. If you think all the amenities are not your cup of tea, you may want to consider a building with limited amenities and save on the monthly fees, investors would probably want to look at the bottom line and take monthly fees into consideration.
View – one of the reasons there is a premium for higher floors, the chances of having better view increase the higher you are. There may not be a clear definition of what a great view is, opinions will differ, quite often it equates to unobstructed view of the lake, park, downtown etc. It is fairly easy to judge the current view, but how can you assure the same view will remain in the future? You can look at the odds:
- Great odds – if your condo is right on the lake with no room to built in between, if you are facing a protected park, if there is already a fairly new condo built but it has a lower number of floors and you can see above it, basically anything that makes it almost impossible to be removed or replaced. New subdivision will not be bulldozered, St, Michael’s cathedral will likely remain…
- Low odds – if you happen to have a great view now but down below is a parking lot, old warehouse, small building of no significance, low rise industrial complex, well there will be a pretty good chance the owner of these properties will sell the land to the developer and with the blessing of the city your new view obstructer will appear.
- Medium odds – the range will be quite wide, I would say anything in between some with low probability, other a bit higher. A shopping plaza will likely remain but there is no guarantee, a block of older houses for the most part will remain but the developers have bought blocks of land and built a condo on it, mid rise medical building will likely stay but I personally know some buildings 6 or 8 floors high that have been or are about to be demolished.
If you are on a higher floor you could use an eye sore such as train tracks or a highway as a buffer, at the very least nothing will be built within few meters of your window because the highway or the train will prevent it, and a condo built few hundred feet away will not be as bad as the one built right next to you.
Parking – very important aspect of buying a condo, when comparing prices with other units make sure you are comparing apples to apples, same units may or may not have a parking spot. Many condos, and I would say pretty much all new condos around DT Toronto have less parking spaces than units so there is a demand despite many condo dwellers not owning a car. Smaller condos such as studios or 1 bedrooms quite often don’t have parking spots, larger units are more likely to have one.
There is a definitely a significant cost associated with owning a parking spot, you are likely to pay more when buying a resale, you will pay a very significant amount when buying a parking spot with preconstruction unit, you are paying more mortgage and interest on the mortgage will be a bit higher, and there will be condo fees associated with owning a parking spot.
Is buying or selling a parking spot possible? It depends. This will be determined by the legal description and the bylaws of the condominium. If the parking spot is on the same title as the unit you may only be able to sell it when you actually sell the condominium. If the parking space has a separate legal title (commonly referred as Titled Parking Unit), you will likely be able to sell the space to another unit owner in the building.
Exclusive use parking spot – this spot doesn’t actually belong to you; this is a spot you are assigned to use but it belongs to the corporation as part of the common elements. You as a unit owner do not hold the legal title to the space, but you have exclusive right to use it.
Assigned parking spot – corporation can simply assign a common property parking space to the unit owner; this method has less certainty than titled parking of exclusive use parking.
If you are not able to purchase the parking spot renting is a good option, DT Toronto on average will run you approximately $200-$250 per month. When you are renting the spot out, or renting from someone, you need to take into consideration the regulations the condo board may have imposed, one of the typical restrictions is that you can only rent a spot to someone who occupies the building.
Lockers – with the units getting smaller and smaller the extra storage space is definitely very useful, pay attention if your potential unit includes a locker. If not, you can often rent one for approx. $50. There are no standards for locker size, it depends on the building. Similarly to parking spots they can be owned or assigned as exclusive use, obviously owned is better and you will have an option of selling if the locker has a separate title, although you may want to hold on to it until you actually sell the condo (subject to condo by-laws which are found in the condo declaration). It’s important to remember that the items should be stored in a safe and organized manner without presenting any safety or fire concerns, if the board or management deems the content unsafe, they will ask you to correct the problems to avoid any possible issues with safety and insurance claims. The rules affecting the lockers will be found in the declaration.
Balcony – may not be a deal breaker but a nice feature to have, many units, especially some glass buildings with floor to ceilings windows do not have balconies, some have Juliette balconies which means you can slide the door open but there is no actual balcony to sit, actual balconies will vary in size from one that barely fits a chair to expansive wrap around balconies for high end units. If your unit doesn’t have a balcony you probably would want to see if a shared patio is one of the amenities, this way you can enjoy the summer afternoon or have a barbeque.
Electrical fixtures – I suggest paying attention to the placement of the electrical fixtures, many units don’t have outlets for fixtures in the middle of the ceiling, if you really want the chandelier above the dining table you may be out of luck, many units are lit up with floor lamps.
Condo fees – I would say the condo fees are one of the more important factors when buying the unit. Buildings with high condo fees will be less desirable and may be harder to sell down the road, remember the condo fees go up every year, they never go down, as the building ages this will be getting worse and worse every year. Every $250 increase in condo fees is an equivalent of approximately $55,000 in mortgage (assumed 2.7% rate and 25 years amortization), if you are faced with this dilemma it is probably better to buy more expensive condo and pay less fees, your monthly payments will be exactly the same but you have acquired more valuable asset.
I have already written a blog why condo fees are so expensive, however one needs to look deeper beyond just the monthly total, what is included in the fees is just as important. You can have one unit with monthly fee of $350, and a similar unit in another building with a monthly fee of $450, the latter includes most utilities, fee for parking and a locker, the former doesn’t and you still have to pay extra for all the utilities etc., despite the significantly lower fee for the first unit the amount of monthly expenses may actually be higher than for the second unit.
In the building the condo fees are allocated based on the size of the unit, the bigger the unit the bigger the fees, all interior area of the unit counts, that’s why it is very important to buy a unit that has very little wasted space, the wasted space counts towards your monthly fees.
As a general rule the large buildings with many units will have a smaller condo fees per unit than small buildings with limited number of units, the more amenities the more it will costs you, older buildings will generally have higher fees than the new once.
Age of the building – I think the age of the building should also play a factor when making a decision on the purchase. With most things man made new is nice, feels fresh. Older buildings probably have higher maintenance fees and may look dated. My preference would be to look at the buildings that are newer, possibly less than 15 years old (with preference being 5-10 years old, brand new buildings are more risky), but I would not discount older buildings, in older buildings you will probably have more space since the new trend in condo buildings is to build very small units, and if the older building is well maintained and has not shown any issues it speaks volume for the built quality. Quite often they are also more affordable because many buyers prefer newer buildings. With brand new and precons there is a layer of uncertainty, having to visit many buildings I am noticing poor quality in the brand new projects, they are just being built too fast and too cheaply, for me it is a growing concern. With units which are few years old there is at least something to be verfied.
HST – There is no HST on the residential condo resale.
Closing costs – The following are the closing costs you can expect to pay when purchasing a resale condo:
Land transfer tax – please see the calculator, depending on the location you may pay provincial land transfer tax, as well as the municipal land transfer tax (Toronto for example), as a first time home buyer you may qualify for a rebate. For details on the land transfer tax please visit the Ministry of Finance.
CMHC insurance – if your down payment is less than 20% you will be required to pay cmhc mortgage insurance, please see the calculator. For more details regarding the mortgage insurance please visit Canada Mortgage and Housing Corporation. You can also contact them to see if the building is on their black list, if it is you may not be able to purchase it with less than 20% down.
Legal fees – will vary based on the lawyer and the price of the condo, typically the legal fess will include title insurance (word of advise, title insurance is not very expensive and can save you thousands if anything goes wrong, just get it), you should probably budget around $1,500-$2,000 for legal fees. When asking a lawyer for a quote ask for all in quote so there are no surprises.
Other – the costs will vary, the lists of additional costs could include inspector if you chose to hire one, key replacement (check with management), utility set up cots (will vary), moving, fee for elevator booking (refundable).
Status certificate – this is so important I will write another blog just on the subject, will discuss bylaws, reserve fund, insurance, financial statements and many more. Please read about it here.
Financing – prior to starting a search for your new condominium contact a mortgage broker for pre-approval. Keep in mind that pre-approval does not guarantee the mortgage at the time of closing. Also be aware that any new financing you take on such as car payment or a credit card bill will affect your mortgage approval.
Once you have found a unit you are interested in immediately send the MLS number to your broker or mortgage specialist. Some banks do not finance hotel style condos, units that are smaller than 500 square feet, the mortgage specialist can quickly see if the building is on their black list for financing or insurance.
My personal preference is to deal with a mortgage broker, when dealing with a bank or a credit union you are dealing with a representative who may or may not care, or is not very educated on all aspects on financing, not to mention the mortgage brokers deal and source financing, from many financial institution, banks or credit unions offer their own products which may not be the best.
Size verification – verify the size, quite often the listed size range (500-599 etc) is incorrect, or includes the balcony. The easiest way to find out the unit size on most newer buildings is to google the plans.
Google – do not ignore this very important tool, google the address, find out who was the developer (not all developers are the same), is the developer still in business, are there any problems with the building people are talking about on the forums.
Numbering - agree or not, there is enough people paying attention to the numbers (bad luck, death, symbolism etc) that there may be a price difference solely based on the unit number, for example unit 444 will likely sell for less than unit 555, and unit 888 will be in high demand, keep this in mind when it comes to resale.
Talk to building occupants – often underutilized, most occupants will be glad to tell you how is the management, issues with the building etc. All you need to do is go to the lobby, more often than not once you explain why you are there people will be happy to share their opinions.
In your search for the perfect condo unit you will likely not get everything you want (unless your budget has no limits) and you will need to compromise somewhere, hopefully this blog will give you more insight into various aspects of buying a condo.
Please don’t hesitate to contact us with any questions or comments.