Buying preconstruction condos in the city come with their fair share of benefits and downfalls, but it’s important to prepare yourself for the final out of pocket costs. Here are the 5 most overlooked costs when buying preconstruction condos.
Development levies, environmental fees, and utility hookups
If these aren’t capped, they can theoretically end up costing you in the tens of thousands on top of traditional closing costs. Most lawyers will recommend a having a “Cap” placed on these additional fees. With preconstruction condos, it’s fair to ask for cap between $2,500-$5,5000, but its not unheard of to have caps as high as $10,000.
Nickel and Dime Charges
Once you’ve capped your development levies and utility hookups, you’re still not safe for additional nickel and dime charges, which are added on top of your maximum cap. Builders, and their lawyers, are extremely creative. They might request that you pay for the dismissal of their building loans (a few hundred bucks). They might charge you a fee for each cheque they cash ($75-100 per a cheque). There are many creative ways that builders pass their operating costs onto the buyers, it’s up to the buyers and the buyers’ representatives to ensure they know exactly what they are agreeing to pay.
Interim Occupancy rent
On preconstruction condos there are two closing days. There is the day you move into your unit, and the day that the unit officially becomes yours and your name is placed on title.
Once your home is ready for occupancy, you will receive the keys and the builder will start charging you Interim Occupancy Rent. At this point in time, you are not paying your mortgage, or maintenance fees, because the building has not yet been registered. A few months after you move in, the building will register, and you will have an official closing date. On closing date your name is placed on title, and you will start paying your mortgage, maintenance, taxes and utilities. Interim Occupancy Rent is about $1,200/month for a 1 bedroom.
If you are purchasing a property with the intention to “flip” the property in a few years before the project is complete, let your Realtor and your Lawyer know! You need an assignment clause included in the contract. Even if you have an assignment clause, you can only assign your purchase agreement under strict criteria. The builder does not want to complete with you, so they will restrict when you can sell your contract (usually once they have sold 90% of their own units). The builder will charge you around $500 to request the assignment, and they can arbitrarily say no. Some builders will charge you a percentage of the sale price if you assign your contract, usually 1% of your sale price. But that is still cheaper than closing on the property and paying land transfer taxes, and then trying to sell the unit.
These are just a few of the costs included in builder's contracts
If you’re considering purchasing a preconstruction condo, remember that the person working for the builder is working in the builder’s best interest. Only a Realtor that is experienced in selling preconstruction can honestly estimate your final out-of-pocket costs, and inherent risks.