Buying a condo unit during the preconstruction phase might seem to be a straightforward proposition. The future unit is bought from the architectural drawings at the developer's sales site. However, in real life, buying a unit before it's constructed may work out to be anything but straightforward.
Developers often redesign the layout of units as they go, as a result of changes made necessary during construction. Moreover, they draft the purchase contracts to their advantage. For example, if they are late in completing the complex, the purchaser is forced to agree to delays, or to occupy the unit while the complex is still awaiting occupancy permits of units that may still be under construction.
Unwary buyers could also become victims of developers who sell them units in the early stages where they are still in possession of more than 51 per cent of the condo project. Over time, developers may become unable to sell the rest of the units.
A condominium unable to attract new buyers may experience a rapid decline in the value of its units. Upon realizing that there was no longer demand for their units, developers may resort to renting out the unsold units, bringing down the overall unit values.
Buyers are well advised to consult a knowledgeable lawyer and insert their own conditions into purchase contracts. By specifying a fixed date of completion, buyers can position themselves to get their deposits back should the developer miscalculate the timing of completion. Timing of completion should be determined by the buyer. I strongly suggest yet another contingency where the proceeds from the unit's sale, along with its deed, be kept in escrow by the developer's lawyer, until such time that developer sells at least 51 per cent of the units to individual unit buyers.
Until such time, the unit buyer should be paying occupancy fees to developers, equivalent to the monthly maintenance fees plus the anticipating monthly mortgage payment. Such arrangement would provide that after expiration of specific time, buyers would be entitled to a refund on their deposits and/or sale proceeds, in cases when complexes weren't finished on time, or respectfully, where 51 per cent of the complex isn't sold to the other unit holders. Such arrangement would help protect the values of the already sold units. Shy away from any purchase in which the developer isn't willing to accept your conditions as, otherwise, you may be putting yourself at the developer's mercy.
Another thing to keep in mind are condominium maintenance fees. They are guaranteed only for the first year of operation from the time unit owners take control of the complex. Developers often calculate their initial budget on the low end to make condo units more appealing to buyers.
Almost as a rule, in the second and third years after majority of unit owners assumes the control of the complex from developer, unit owners get hit with considerably higher monthly maintenance fees to cover the developer's cost overruns. Buyers should assume and expect that there will be an increase in maintenance fees from the first year onward, following the completion of a new condominium.
- Watch out for contracts that force you to buy the condo unit even if completion of the whole complex's construction is delayed.
- When buying during preconstruction, count on higher maintenance fees than originally calculated by the developer.
- Check the reputation and track record of the developer and builder before you buy.
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