So you’ve made the leap into home ownership by purchasing a condo that looks great from the designs. You put down a deposit, sign an agreement that weighs a ton, put your financing in place and then sit and wait…and wait…and wait.
Depending on when you buy in the pre-construction sales process, your new condo may not be ready to occupy until two to three years down the road!
Despite this lengthy process, the Toronto condo market and its pre-construction sales cycle remains among the most robust in North America (in 2015 GTA builders completed 19,399 units, sold primarily as pre-construction units).
Clearly condo buyers in Toronto seem to be unafraid of the typical pre-construction cycle, recognizing and accepting the lengthy period between signing a deal and moving in. But while most recognize the construction process and expected delays to come, are they also aware of the unforeseen delays that may await them?
Most Toronto area developers are, and the purchase agreements they ask you to sign reflects that with language stipulating that the builder is allowed to extend the closing date — in some cases up to three times — adding weeks or months to your anticipated occupancy date.
In the period between signing your deal and moving in, your life circumstances may have changed — you could have gotten married, started a family, changed jobs, etc. The urgency for occupancy may be stronger than you ever imagined. Nevertheless, while there may be changes in your personal life there’s not much you can do about a project's construction delays — the possibility of which was in the fine print in your purchase agreement (which your lawyer should have pointed it out to you) and which you OK'ed, with your signature.
Of course, like any major purchase, the usual advice applies: buyer beware.
But if you're still one of the thousands of Torontonians wanting to get in the market — and get the condo of your dreams — by buying pre-construction, then there are steps you can take to make the process less stressful.
First-of-all, there is a 10-day cooling off period from signing the purchase agreement. This gives buyers time to really dissect the agreement and become more aware of what they’re getting into. Secondly, if the condo is not ready after the extension or other mutually agreed upon time, then buyers are compensated up to a maximum $7,500 under provincial law. Or, buyers can opt to get their deposit back and move on. It’s all in the fine print.
Unfortunately there is little else in place to protect buyers, most likely because there‘s been little need.
For the most part, condo buyers do end up getting the new home they dreamed of, however long it takes, as Toronto's developers (with few exceptions) have a very good record for completions.
While Urbancorp's recent bankruptcy protection filing has made headlines and, so far, left many buyers without a unit to move into and fears about their hefty deposits, this situation is the exception, not the norm in the city's condo market. Nevertheless, the experience of these buyers should be a lesson to anyone considering a pre-construction condo purchase. Before you sign a purchase agreement, do your research, anticipate foreseeable changes in life circumstances over the construction phase, take advice from your lawyer, sit back and enjoy the ride.
5 ways to lessen your risk when purchasing a condo:
- Stay away from inflated prices. Make sure you’re getting a discounted price for the risk of waiting two to four years.
- Select an experienced builder. In a hot market, everyone wants in on the action. Research your builder and make sure to go with one with a strong portfolio.
- Don’t get caught in the hype. A lot of money is spent on marketing and promotion. Take a breather and think about the purchase and go back to the first recommendation — don’t buy at inflated prices.
- Read the contract for phrases such as “more or less” and “subject to change without notice". This means the builder can make extensive material changes to the building and to your unit and you can’t do a thing about it.
- Beware of closing costs. When a project is launched, developers are not sure what the development costs will be. Some closing costs have been known to add an extra $30,000. Try to negotiate closing costs in advance or at least try to negotiate a cap, and make sure it’s in the purchase agreement. At minimum, hire an experienced lawyer who specializes in condos.
Of course, for those who just can't wait to move into the condo of their dreams, there's always the resale market.