Canada's Condominium Magazine

Pre-construction condo? Read the fine print and buy from reputable builder

As reported on CBC television news last night, a Toronto man is suing the developer of a condominium building in which he bought a pre-construction unit. The man said that the developer’s marketing materials were misleading, and that he is disappointed in the building now that it is finished. He is reportedly suing for $6.5 million. The developer pointed out by way of justification that the purchase agreement all purchasers sign contains a clause stipulating that the developer may change the design of the building “at its sole discretion.” It was not clear from the report whether the man had read this section of the agreement.

A real estate agent featured in the same CBC report said that the best way to avoid a situation like this is not to buy pre-construction condominiums. This advice, as the real estate agent must realize, is a little bit disingenuous. Most condos would not be built without purchasers who are willing to buy pre-construction. Banks and insurers require a certain proportion of condo units to be pre-sold before they will agree to finance or insure a condominium project. The number of suites that must be pre-sold can be as high as 85 per cent of the total, depending on the developer and the lender.

As well, there are advantages for the buyer in buying pre-construction. These include a lower price in most cases, a reality that even the man who is suing his developer did acknowledge, as well as a greater choice of locations in the building, a broader range of options and upgrades for the suite, the satisfaction of being the first owner of a brand new home, and new home warranty protection, to name a few.

Buying a resale condo, on the other hand, lets the purchaser see the actual suite he or she is getting, not just a model or a floor plan. The purchaser also gets to move in right away, rather than waiting two or three years.

It’s an old debate, the one between pre-construction and resale condo buyers. It is no doubt true that some people would not consider buying pre-construction, either because they are not temperamentally suited, or they can’t wait, or for some other reasons. But for those who do choose this option, perhaps the best advice is to keep a clear head. It is only being a smart consumer to be aware that developers will put their best foot forward when pre-selling their products. They will show you glossy brochures and slick video presentations and gorgeous renderings and model suites. That is all just part of the selling process, and it’s intended to appeal to people’s emotions, dreams and desires.

But smart purchasers make their decisions based on reason, not emotion. In their book Investing in Condominiums, Brian Persaud and Randy Ramhadin are explicit about the risks associated with buying pre-construction. These include changes in the economy and work stoppages, which could affect the time until completion, as well as changes in the neighbourhood, changes in the law, and legal risks. Their advice is to look for a developer with a good reputation for finishing its projects on time and with high standards of quality.

This is possibly the most important thing purchasers can do to protect themselves and avoid disappointment when they take possession of their new condo home. Choose a developer that has been around for a long time and has a lengthy track record of successful completions, as well as a good reputation for customer care. One Toronto realtor with experience in the pre-construction condo market wrote in a blog for the Ontario Real Estate Association that “some reputable builders value  customer loyalty over the bottom line.” Those are the ones to deal with.

The other essential is to have an experienced real estate lawyer look at all condo-related documentation before signing any agreement. With the lawyer’s help, find out beforehand exactly what can and cannot be changed in the developer’s plans, from suite floor plans to amenities to parking and so on. It is also important to know what approvals have been obtained by the developer. The further along the project is in the rather lengthy approvals process, the less likely it is that there will be any changes, or surprises.

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