Top 5 Key Points for when you are considering buying pre-construction!
The Small Print Beneath the Small Print:
Recently there has been a lot of coverage in the media about buying from developers and the pitfalls that can occur for purchasers and I wanted to shed some light on some key pointers I heard last night at a great presentation given by Brian Persaud, host of Roger’s TV show; ‘Inside Toronto Real Estate’ and Bob Aaron, who is one the cities most reputable real estate lawyers. Brian Persaud is also a co-author of a Canadian specific investment book: Investing in Condominiums, which provides strategies, tips and expert advice on this investment vehicle.
So let’s dive in and get you educated on what to do if indeed you are considering buying pre-construction from a developer.
One of the best quotes of the evening about this process was;
“From a legal standpoint, any similarity between what you actually get delivered to you, as the purchaser, on closing and what you thought you’d get from the contract ... is a coincidence!”
1. Inform your real estate lawyer;
It would be prudent to contact your lawyer even prior to putting an offer on a pre-construction development to inform them of your intentions with the property. There are several implications which your lawyer will go through based on whether you intend to live in the property, rent it out or sell the property vacant.
2. Review the pre-construction contract with your lawyer;
Not all pre-construction contracts are made alike, in fact the majority are different as they are written by the lawyers acting on behalf of each development company and as there can be on average 40-50 pages in the contract it’s wise to have independent legal advise.
3. Do your due diligence on the development, interior design and architectural companies;
Most development companies will have built up a reputation in the GTA over the last decade and it’s possible to do some research on the Internet as well as speaking with purchasers who have bought in some of their previous developments. It’s also good to note that Interior Design and Architectural companies will be choosy about which developer they align themselves with. A developer by nature will mostly ere on the side of modesty when choosing finishes and designs but on the other side, the architectural and interior design firms will want to negotiate a happy medium to the point where they are comfortable putting their brand behind the project.
4, What’s actually included in the price?
The price tag on the feature sales sheet does not include everything that the purchaser will have to pay on closing. There can be many extra charges added on and they generally have to come out of pocket and can cause quiet a surprise for the buyer on closing. These charges can include such items as municipal levies, the Tarion new home warranty fee, Utility hook up fees and so on, the list can be extensive. Ask your lawyer to review the extra charges in the Disclosure Book and possibly negotiate a cap on the extra charges.
Note: the Disclosure Book is an additional document which is part of the purchase and includes details which are not mentioned in your agreement of purchase and sale. It’s another mammoth bedtime story and should be reviewed.
5. Do your due diligence on the area’s planning and zoning by-laws.
Too often we’ve heard the stories about buyers who thought they had bought a great unit with a panoramic view of the harbour and lake only to have a new development spoil the view a year later moving in.
Once again, some prudence and due diligence will answer these questions for purchasers. Determine what planning and zoning permittances may occur in the area in the future. Speak to the local planning department for the area and find out what plots of land are zoned for and who owns them. One can be sure that if a developer owns the land it will more than likely become a tower in time.
The Bottom Line:
You can please most of the people most of the time but you can’t please all of the people all of the time, and that’s exactly what happens with pre-construction sales.
95% of buyers will receive a unit which is relatively close to their expectations and 5% will be unhappy with what they get. This chagrin could be due to the builder utilising it’s substitution clause or it could be due to unrealistic expectations. Either way, the development pre-construction contract pretty much says there’s not a damn thing you can do about it!
So if you are buying pre-construction, be aware of the risks and be prepared to accept them! Otherwise buy re-sale so you know exactly what you are buying.
So there you have it. These above pointers are a very brief synopsis of all the great information provided last night. Feel free to contact me if you are considering buying or if you’d like more tips buying on pre-construction condominiums, lofts or homes.
PS. If you or someone you know needs any assistance with real estate please feel free to pass on my info! I’d be glad to help.