Buying a condominium
Determine the condominium you can afford and which experts to consult.
Looking at potential homes to buy can be an exciting experience. First, you need to figure out what you can afford and how much of a mortgage you’ll need. Then, once you find a condominium that matches your financial and personal criteria, you’ll want to ensure that it’s well managed and in good physical, financial and legal condition.
There are significant distinctions between buying a new condominium and a previously owned, or resale, unit. This section highlights what you need to look for, whichever route you choose. It will also tell you how buying a condominium differs from purchasing a “fee simple” home and help you determine what you can afford and which experts to consult.
BUYING A NEW CONDOMINIUM
Developers often put new condominiums up for sale before their construction has been completed or even begun. You may be selecting your unit from a floor plan. This has advantages — you may be able to ask for changes — and risks — the as-built result may differ from the plan or what you had envisioned and the completion date could be later than promised.
When considering a new condominium, you should have a close look at your unit’s specifications and the building’s plan and other governing documents to ensure that your unit is acceptable and that you’re fully aware of regulations and the corporation’s budget.
You’ll want to find out from the developer what work must still be done on the project and check that your purchase agreement specifies a completion date and under what conditions the developer may change it. The developer should also be able to give you details about the property manager who will hold the key responsibility for the day-to-day running of the condominium.
For more information on what to look for when buying a new unit, see Tips for buying a new condominium.
Buyer beware!
When you buy a new condominium, be prepared to pay occupancy fees — sometimes called “phantom rent” — to the developer. Occupancy fees cover the period between the time you take occupancy of your unit and the time you take ownership of it (once the unit is registered).
BUYING A RESALE CONDOMINIUM
When you purchase a resale unit you have the advantage of seeing what you’re buying. It’s clear how much space you’ll have, what the layout is like and where the common elements are. But you’ll also want to find out about less obvious aspects, such as what steps have been taken to limit noise between units and how odours are controlled.
On the financial and legal side, you should review the corporation’s annual operating budget, financial statements and estoppel or status certificate. The estoppel or status certificate is a package of legal documents that may include the declaration, bylaws, rules and information about the corporation’s insurance, reserve fund, property management contract and any outstanding judgments. You may have to pay a fee to cover the corporation’s costs of providing these documents, but it will be well worth it — so much so that you should make any offer to purchase conditional on a satisfactory review of these documents.
For more information on what to look for when buying a resale unit, see Tips for buying a resale condominium.
THE PROS AND CONS OF NEW VERSUS RESALE
When deciding whether to purchase a new or resale condominium, you’ll want to consider the advantages and disadvantages of both.
Some Pros of Buying a New Condominium:
- A lower purchase price (depending upon market conditions).
- A greater choice of locations within the building (if applicable).
- A broader range of options and/or upgrades.
- Less risk of having to undergo costly, noisy and intrusive repairs and renovations.
- New home warranty protection.
Some Cons of Buying a New Condominium:
- If construction has not been completed, you cannot “see” what you are buying and must rely on artist sketches and floor plans (which may change). Be sure to have the unit’s boundaries, location, finishes, materials, chattels, etc. clearly specified in the purchase agreement.
- Your initial deposit will be tied up for the duration of construction.
- Financial institutions may not give you a mortgage on an unregistered condominium.
- Construction of your unit may not be completed by the expected date.
- You may move into your unit while construction continues in others, which can be noisy and disruptive.
Some Pros of Buying a Resale Condominium:
- You get what you see.
- There are no lengthy waiting periods before you can move in unless provided for in the condition of sale.
- Deposits are often much lower for resale purchases and typically there is no GST/HST. In some exceptional situations the GST or federal portion of the HST applies.
- You can check out the condominium “community” in advance to see if the corporation is well run and the people who live in it are compatible with your needs and lifestyle.
- Older condominiums sometimes have larger units.
Some Cons of Buying a Resale Condominium:
- Fewer options with regard to choice of unit (within the building), decorating or upgrades.
- Older resale condominiums may require more maintenance and repair than new ones.
- The amenities that you may find desirable (for example, a workout room, whirlpool, security features) may not be available.
- Older resale units may not be as energy-efficient as newer units.
- Major repairs may be coming due that will require extra charges to the unit owners if the reserve fund is underfunded.
- You will receive only the portion of the new home warranty that has not yet expired.
AFFORDABILITY — HOW MUCH WILL IT COST?
It’s important to know how much money you should set aside to purchase — and live in — the condominium you are considering. Additionally, when you are shopping around and comparing different condominiums, it’s important to compare the purchase prices and monthly fees for each unit.
Ensure you can afford your mortgage and your new monthly expenses. Your bank, mortgage broker or financial advisor can help you tailor your mortgage to suit your financial goals and needs. CMHC’s online guide Homebuying Step by Step can also help you to determine what you can afford.
There are many different types of mortgages, including conventional, high ratio and second mortgages. Take the time to discuss your current financial position and future goals with your financial advisor and be sure that you are comfortable with your purchase.
Know What you Can Afford
If you are presently renting and are looking at purchasing for the first time, here are some important points to consider when assessing what is affordable for you. Canada Mortgage and Housing Corporation can help you to determine what you can afford with an online calculator available free of charge at CMHC’s online guide Homebuying Step by Step – Step 2: Are you financially ready?
Down Payment
The more of the purchase price you can afford to pay initially, the less interest you will pay over the course of your mortgage.
Mortgage
Consider the type of mortgage, rate of interest and term. Consult with your financial advisor or bank loans officer to decide what works for you, and what would be your financial position if mortgage rates were to rise. Be sure to factor in the costs of mortgage loan insurance if applicable (required if the down payment is less than 20 per cent of the unit’s purchase price). Life insurance may also be desirable but ensure that the costs are also factored into your monthly budget. The more frequent your payments, such as every two weeks instead of monthly, and the shorter the amortization period, the less interest you pay over the course of your mortgage.
Fees
As a condominium owner, you will pay a monthly fee that is your share of the operation and maintenance of the common property elements. A portion of this fee will typically be set aside for the corporation’s reserve fund, which covers the costs of major repairs and replacement of the common property elements over time. You will need to know exactly what is and isn’t included in the fees for any condominium you consider, and how much you can expect to pay.
Property Tax
When you rent a place to live, the property tax is usually a part of your rent. When you own a condominium, you are responsible for paying your own property taxes. For a new condominium, the municipality in which your condominium is located should be able to tell you how much you can expect to pay. For existing condominiums, this information can be provided by the real estate agent or the vendor. Ask for a copy of the most recent property assessment and tax bill.
Utilities
These may or may not be included in your monthly condominium fee. You will want to know what you can expect to pay for utilities such as natural gas, water and electricity.
Did you know?
Any costs over and above the basic unit purchase price should be clearly outlined in the agreement of purchase and sale. You should budget for these charges when you are considering buying.
See Condominium purchase and recurring costs to help you with your budgeting.
Special Considerations
You’ll want to be crystal clear about the following when making an offer on a condo unit:
Declaration
A condominium’s declaration sets forth fundamental information about how the condominium is organized and operated, such as the proportion in which owners are to contribute to the common expenses, and it may have restrictions on pets, home-based businesses, what can go on a balcony and many other issues. (Some provinces don’t use the term “declaration;” instead this “constituting” document is included as part of the condominium “plan.”)
A declaration can be difficult to change so you’ll want to read it over very carefully to ensure that it does not contain unacceptable terms or restrictions.
Unit Boundary
Find out exactly where your unit ends and the common property begins. Is the door to your home part of your unit, for example, or is it part of the common elements? You should have a good look at the condominium’s plan so you know precisely what you’ll be responsible for maintaining. For more information on unit boundaries, see Where are my unit’s boundaries.
Unit Factor
Your unit factor (sometimes called “proportionate share” or “percentage of ownership”) tells you what percentage of the condominium’s common property you own. It’s a key piece of information because it determines how much you will pay in monthly maintenance fees and sometimes your voting rights.
You’ll find your unit factor listed in the condominium’s declaration (or other governing documents, depending on where you live). Don’t expect it to be equal to your neighbour’s, but it should at least be similar to those of other units that are comparable in size and location.
Your unit factor is usually based on the size and location of your unit. Before you buy, verify what your unit factor will be with your lawyer. For more information on unit factors, see How are my voting rights determined?
Reserve Fund
A portion of your condo fees will likely go toward the building’s reserve fund. (Your province or territory may have another name for this, such as contingency fund or capital replacement reserve fund.) A reserve fund ensures that the condominium has enough money to pay for the major repair and replacement of the common elements over the life of the building. These may include the roof, roads, sewers, sidewalks, elevators, plumbing and other building systems. For more information on reserve funds, see Is there enough money in the reserve fund?
Home Warranty
New condominiums are often protected by third-party new home warranty programs. Warranty programs ensure that the condo is properly constructed and meets building specifications. If you’re buying a new condominium, find out what is and is not covered by the warranty. If you’re purchasing a resale condominium, find out what warranty coverage remains on the unit, if any. For more information on home warranties, see How do new home warranties work?
Did you know?
New home warranties may protect the deposit you place on your new condominium, up to a maximum amount, in case the developer cannot, or will not, complete your unit through no fault of your own. Check with your provincial or territorial government to find out more about warranty programs as coverage varies across the country. See also the Homebuying Step by Step guide
Insurance
There are special considerations when insuring a condo as opposed to other forms of housing tenure. You’ll want to check that your individual unit and the condominium corporation as a whole are sufficiently insured. For more information on insurance, see What property or general insurance coverage should I look for? in Frequently asked questions.
Caution!
Check that your unit factor (also called “proportionate share”) has been assessed accurately so that you’re not overpaying monthly maintenance fees. Unit factors are rarely assessed incorrectly but an error can be difficult to rectify because it means changing the corporation’s declaration (or other governing documents).
Did you know?
A developer may own units (model suites, for example) that have a disproportionately low unit factor. This is uncommon but it can happen because it is the developer who decides which unit factors are assigned to units when the condominium is registered.
Caution!
The last thing you want is to move into your new home only to discover that the reserve fund is underfunded and major repairs are required. This could mean a big jump in your monthly condo fees or a lump-sum payment.
Whom Should I Consult About Buying a Condominium?
There are a number of professionals you should turn to when buying a condominium. Real estate agents, lawyers, developers and property managers — who ideally specialize in condominiums — all play an important role.
Here is an overview of how each professional can help. See Questions to ask advisors and condominium experts for a list of things to ask before finalizing your purchase decision.
Real estate agents: Buyers typically contact real estate agents when purchasing resale condominiums. If you’re buying a new condominium, you’ll usually deal with the developer directly though it can be a smart move to work with an experienced agent who may be able to help you secure upgrades and better terms from the developer. A skilled agent can help save you time and energy and provide advice about what to include in the purchase offer to protect your interests.
Property managers: Unless a condominium is self-managed, it’s the property manager who handles the day-to-day running of the condominium, such as the hiring of staff, maintenance and repairs. The property manager is under contract to the condominium corporation and plays a pivotal role in ensuring the building operates safely and effectively.
Condominium’s board of directors: Before you make a decision to buy in a particular building, it’s worth taking the time to speak with the owners who sit on the board of directors if you have the opportunity. They have a “bird’s-eye view” of the corporation and may be able to alert you to potential problems.
Lawyers and notaries: A real estate lawyer (or notary in Quebec) who is knowledgeable about residential condominiums will protect your legal interests. He or she should help you understand the condominium documents and will review your offer to purchase and the purchase and sale agreement. A lawyer will also be able to tell you whether or not there are legal actions against the condominium corporation.
Home inspectors: A qualified home inspector can evaluate the condition of the interior of your unit as well as the exterior elements of typical low-rise housing types, such as single-family homes, duplexes, triplexes, row houses and small apartment buildings. For larger apartment buildings, you may want to hire more specialized professionals, such as an architect or engineer, who regularly conduct condition assessments of larger buildings
Did you know?
If you’re purchasing a condominium in some jurisdictions, you can make the agreement-to-purchase offer conditional upon the satisfactory review of the condominium documents and financial statements by a provincial condominium document review specialist.
Buyer beware!
Use all of the investigative tools at your command to help you avoid serious problems. These tools can include property disclosure statements, professional property inspections, condominium corporation minutes and engineering reports.
