What is a Condominium?
What should a potential condo owner look for in terms of location?
Buying a New Condominium from the Developer
Buying a Condominium Conversion
Buying a Used / Pre-Owned Condominium
What are some of the perils a potential condo owner must be aware of?
What is a CCS ‘Certified Condominium Specialist'? How can they help avoid perils?
How to become educated about the condo you want to buy What is a Condominium? A condo is a living space within a complex that you can call home; it’s also a corporation with a government that manages those spaces. When the condo’s government and all of its components are good that means there’s money in the bank, the living experience is positive, and the financial investment is sound. There are condos with bad or no government that are poorly managed, and because of systemic failure are in a state of disrepair with either not enough money or none in the bank, and should be avoided at all cost. The problem is that from the outside they can both look fine to unsuspecting buyers and inexperienced realtors. If you don’t know what to look for, you’ll not likely be able to differentiate between what to buy and what to walk away from.
What should a potential condo owner look for in terms of location?
Location (within the city): Buyers should purchase as close to their work and social networks as purchase price will permit. There are many instances in condos where paying more is a lot cheaper than paying less! Location (within complex): Applies mostly to condo apartment buildings and includes choice of Floor/View, Facing Direction, Parking, Elevators, Street-Traffic-Building Noise, and Amenities. All of these will have an effect on your comfort level and the price for buying or selling. For example a top floor south exposure unit with a view and underground parking will sell faster and for more money than a ground floor unit with surface parking. Buying a New Condominium from the Developer Advantages: It’s attractive to buy a unit that’s never been lived in; it’s a simpler process to purchase new as the financing and legals are usually handled by the developer. Additionally, the buyer may get some opportunity for choice for wall colours, interior finishing and appliance package upgrades if they buy early enough in the construction of the project Disadvantages: Disadvantages of buying new do exist but are usually never disclosed to the buyers. Buying directly from the developer is the ultimate high pressure situation. It often requires speculation on how everything will turn out, the story and designer drawings are always intoxicating, the condo fees are always unreasonably low, and you’re led to believe that you have to buy it right now or it’ll be gone. - Speculation: Buying from the developer exposes you to a lot of speculation. First you assume that the developer will actually complete the project. Some don’t, they go broke. You assume that the project will turn out to be as attractive as it was proposed to be. Lots don’t!
When you buy new you cannot evaluate anything in advance and you have to hope that the builder will do exactly as they said they would do. Many builders are good to their word but not all. After talking with other new owners you will often hear that what they were told is not how it turned out for them. - No Government / System: New condo projects do not have a government or a system of operation until the project gets turned over to the owners. The time period (the growing pains) between when a complex gets turned over to the owners and when it is running successfully is between one and three years. The biggest problem with NEW is it’s impossible to evaluate its government or its operations.
- Price: New Home Pricing is not based on Market Value. Builder pricing starts out as Price = cost of land + cost of construction + profit. The prices then go up after a certain percentage of sales or stage of construction.
- Representation: Note: Buyers are always allowed to use their own realtor in the purchase and at NO COST to them but most people are unaware of that. The cost of the unit is exactly the same in any event but the sales staff who man the show suites being employed by the developer favour the developer’s interest and will not share this information.
- Financials and Legals: While it’s convenient to use the lender and lawyer that the developer uses... these resources if anything will favour the developer – NOT THE BUYER.
- Growing Pains: There is the installation of the first Board of Directors, the establishing of a working relationship with the management company, dealing with deficiencies that the developer walked away from leaving it to the owners to pay for, the fine tuning of the rules of the complex and the enforcement of those policies, the recruiting of volunteers to help in various duties to enhance the day to day operations of the complex and more.
Buying a Condominium Conversion New condo conversions are really a separate discussion. They’re old buildings, walk-ups and concrete medium rise buildings that used to be rentals and have recently (from the 1990s) been converted to condos. - Conversions need to be evaluated particularly closely because of all the sad stories that have occurred regarding hidden defects that were not fixed by the developer. These repairs were left for the unsuspecting owners to deal with for which there was not enough money. Special assessments for financing to the owners were the usual result in these situations.
Buying a Used / Pre-Owned Condominium
Advantages: Existing Government /Operating System / Track Record - No Speculation, Price, Extras, Representation, Financials and Legals - Existing Government / Operating System - Zero Speculation: The advantages of buying pre-owned condos are typically not well known to buyers. Buying pre-owned has many benefits. First, you won’t risk investing in something that might not get built. You get to evaluate the finished project before you buy as opposed to speculating if it will turn out well.
- You will inherit a contingency fund put into reserve by the previous owners and the complex is fully operational with a track record to evaluate. There is an existing Board of Directors and a management company that have a system in place to maintain the project as opposed to going through the growing pains of setting the system up for the first time.
The biggest advantage of buying an existing condo over buying a new one is you can inspect the property to see if it’s worth buying. It’s easier, if you know what to look for, to protect yourself from serious problems and walk away, as opposed to buying on spec hoping everything turns out well at some later date. Used or re-sale units are priced based on market value. Price = what others like them have recently sold for or less Often resale units can be bought for less (cheaper per square foot) than market value depending on the seller’s situation and motivation. Developers are not known to negotiate – the price is the price – take it or leave it. - FREE Extras: Some re-sale units have had outstanding remodelling upgrades (Stainless Appliances, Solid Wood Cupboards, Marble Countertops, Hard Wood/ Slate/Tile Flooring) included in the price at a fraction of the cost of the work that was completed.
- Representation: When purchasing pre-owned the buyer has their own realtor representing their interest exclusively in the transaction. In the instance where the realtor is a condo specialist the buyer is better off yet.
- Financials: Mortgage Financing is very competitive – typically buyers can do better than builder financing or even getting a mortgage at their banks by having their own mortgage agent which is also not an expense for them.
- Legals: When buying used condos you pay for your own lawyer. That way the lawyer favours you exclusively to any other party in the purchase contract.
Disadvantages: Less convenient, has been lived in, some complexes should be avoided I have written less here because there is less to write about, they’re safer in every way.
What are some of the perils a potential condo owner must be aware of?
- A condo complex’s management and day to day financial wellness should be the most important consideration for a potential buyer, even more than how nice the unit is. A weak Board of Directors or a bad management company will cause systemic failures that eventually turn into financial losses and serious regret for having bought there. Anybody thinking about buying a condo needs to know things are well run in the complex and that there’s enough money in the bank. The evaluation should be undertaken by an expert third party, lawyer or condo document review company.
This should not be undertaken by realtors in spite of their condo experience because of the potential for conflict of interest. Note: Bad Management or poor financials are excellent reasons for taking a pass on buying there!
- The Reserve Fund: This is part of the financial wellness of a complex but it’s a separate concern apart from day to day operations. In new complexes the fund will be small with no reserve fund study in place. Projects older than 5 years require a 25 year reserve fund study/plan in place and should be evaluated to verify that they have enough money in reserve for the maintenance required in the future. Reserve Fund shortfalls result in financial pain for the owners in the form of increased condo fees and/or Special Assessments. Note: Inadequate reserves – this is another reason to walk away!
- The Complex’s Government – The Bylaws: Buyers must read, understand, and agree to the Bylaws which are the rules under which all owners are expected to live by. Buyers who are a bad fit for a condo complex will regret moving there and will eventually end up moving before they planned to. This is an expense that could have been prevented had they bought right in the first place.
- Look for Internal Problems: There is a way to explore how things are going internally; it’s by reading the Board Meeting Minutes of the complex in question. When buyers buy condos they have the right to investigate everything about that complex and all of the documents required to do this must be provided to them. If you use a condo documents review company, they will investigate for you. Note: Board meeting minutes will reveal financial problems, upcoming special assessments, quality of life problems and more... all potential deal breakers.
- Are Pets Allowed? If pets are involved check the Bylaws for the pet policies in place there. Where pets are permitted understand what approvals are required and how to obtain those approvals, and do exactly what is required. Also, do not sign off on the deal until you have written Board Approval. Note: Pet issues are very important. I know people who have had to move prematurely because of mistakes made in this area.
- What’s the Parking Situation: Parking arrangements is one of the biggest problems that occur in condos. Parking can be assigned, lifetime lease or titled (Owned) so understand the difference between them and what type of parking is being provided to you in the transaction. Note: People with two cars need to purchase condos with 2 stalls. Please do yourself and everybody else a favour - avoid buying a unit with only one parking stall with it.
- Storage: Storage types are assigned, leased or titled (Owned). If you need storage be sure to buy a unit where it is available and know what type of storage it is.
- Condo Conversions: Conversions are most commonly close to downtown. They can be great because you get to live downtown affordably, and they can also be bad because of how they were developed. Note: Particularly careful scrutinizing of this type of condo is important - the potential for disappointment and added expense is high here.
What is a ‘Certified Condominium Specialist’, and how can they assist potential condo owners in avoiding these perils? - A Certified Condominium Specialist (CCS)is a regular Realtor who has completed additional training specifically for condos. They often live in or have lived in condos so they know condos personally as well as professionally. This makes CCS Realtors much better equipped to identify the potential problems with a Complex that a buyer should just walk away from.
All condo buyers and sellers would be well advised to get a CCS realtor to represent them in any transactions involving condos and, at the moment, there are only 720 CCS Realtors out of 5400 agents practicing in Calgary today.
How to become educated for the condo you are preparing to buy?
Before Offer:
- Choose a Condo Specialist as your Realtor and you will learn more about condos than if your realtor is not certified for dealing with condos.
- Hang around the main entrance and talk to numerous owners who currently live there to learn of any issues that they are unhappy with.
- Do a thorough visual inspection of the complex looking for any obvious appearance or maintenance issues that are not being addressed by the management company.
- Re-visit a complex you are interested in late in the evening to see if there is excessive noise or any obvious parking problems.
After Offer: - Read the bylaws thoroughly and know the rules so you can determine if the complex is right for you and your lifestyle.
- Understand all existing policies for restrictions such as age, children or pets. If pets are allowed understand the process for approval. If you have a pet be sure to get Board approval before you remove conditions on the purchase.
- Always get the complex evaluated by a third party, not the realtor. Have the documents gone over to evaluate the quality of management and the financial soundness of the corporation.
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