Wednesday, 24 July 2013

Buying A New Condo or House? Take Heed...

Often in my blogs, I express that I'm not a big fan of new builds. It's not that new condos or houses are not exciting. They can be. I get very excited about certain condo or townhouse developments in the works.

From a purely financial perspective, however, at this particular moment in time,  resale prices on a condo or home tend to be better priced than new builds, even with some of the incentives that are coming out. Nonetheless, you can't blame people for liking new things like a new pair of shoes or a new toothbrush.  So why not a new home? I can certainly see why buyers can get excited about certain projects.

Regardless of your desire for new, the real shocker is not that a new build may be priced higher, but that many buyers buy their units directly from a developer. They march up to the sales centre and just pick a condo and  buy it.

I'm not really sure why this happens. I'm assuming that some buyers feel they don't really need a real estate agent or that perhaps it will cost more if they use one.  Neither one of these things are true. In fact, acting without an real estate salesperson can lead to spending more money than you need to.

If you buy a new build on your own, you are essentially using the salesperson who is representing the developer, and since  his or her boss is the developer, there's a good chance they are not entirely in your corner. The developer's salesperson will be looking to sell units for the developer, not for you.

If you had someone there representing you, you are more likely to find out about the hidden costs. Most buyers who do not use an agent will miss these. Real estate agents (and lawyers) can spot and negotiate some of these and may be able to put a cap on some of these charges.

If you buy from the builder, they may not give you the preferred lot. Their sales people will likely be trained to give you the least favourable location first so they can more easily sell the choice ones after you. You need to ask for the premium lots.

The developer's salespeople will also try to chat about upgrades. What most people don't know: Upgrades are what will bring the builder the most profits. So, when offering upgraded finishes, the prices are often inflated. Some real estate agents can tell which upgrades will bring them additional value or return on investment and which ones will not.

Unlike resale properties that use a standard Agreement of Purchase and Sale form, many of the new builds use a form from the developers that their lawyers have help them put together. It is not a standardized form. I would make sure to run this builder's form by your own lawyer before signing any papers. The forms can vary widely, particularly with fees, but also government taxes, levies, connection fee and extra costs for such things as a recreation centre.

And lastly, let's talk about the builder's measurements. The builder's plans  are pretty generous. I know this first hand because I often hire a professional to measure a unit or home I'm selling for resale, and almost every time, the measurements are less than the floor plans of the developer. The developer's floor plans are usually taken from the outside wall, while most buyers who may live in this property want to know the measurements  from the inside wall. So builder's tend to be generous with their floor plans. But keep in mind a clause can be added that a unit must be within 2% of the measurements or a rebate can be had by the buyer.

Even if you, for whatever reason, do not want to use a real estate salesperson, you should visit the Tarion site to make sure the builder is registered with Tarion. New homes under Tarion Warranty will protect you for a given period of time on all of the new items. So, if your fridge breaks down the day your arrive, then they should be able to replace it. Some things have shorter warranties than others, but they are either 1 year warranties for things such as Ontario building code violations, 2 year warranties for such things as water penetration in the basement, and 7 years for such things as cracks or distortions in the foundation walls.

The Tarion site will also provide you with a list of builders who did not comply with the Warranty Program. You do not want to end up with a new place with a builder that has a lousy track record. Also on the Tarion site, you can find what other developments were done by the same builder. If you are serious about a property, go knock on some doors from buyers who have previously bought from the same buyer in a different project. Ask the owner of that condo or townhouse what they think of the devleopers and what sort of problems ( if any), they had along the way.

All in all,  for those of you who buy directly from a builder, you are not doing yourself a favour by skipping the real estate salesperson. The developer will not charge you any less for not using one. In fact, you may end up spending more on hidden costs, on overpriced upgrades, and a potential buyer who does not  have the reputation to follow through on their Tarion duties.

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