Owning a condominium has never been more popular in Canada. According to the 2016 census, almost 2 million Canadian households live in a condo, with two-thirds owning the property. Condo ownership strikes a balance between autonomy and community, but presents potential buyers with a unique set of challenges when compared to buying a house. So, here’s everything you need to know about buying a condo.
- What is a condo?
- New versus resale condos
- Condo-buyer checklist
- Condo insurance
- Condo Owner’s Protection
- Frequently asked questions
What is a condo?
Let’s start with the basics. ‘Condominium’ (more commonly referred to as ‘condo’) is a term most often used to describe a building- one that contains a number of individually owned units. However, this definition has come to reflect a misnomer. When most people think of a condo, they picture an apartment building. Technically, almost any property can be a condo. The difference between a privately-owned residence (such as a detached house) and a condo is shared (or common) ownership. This common ownership is most often achieved through, and managed by, a condo corporation.
A condo corporation is a legal entity that represents the collective interests of the unit owners of that building. They are businesses (hence the term ‘corporation’) that perpetuate both the shared ownership of common areas and the outright ownership of individual units. They also hold the authority to create and enforce rules (known as bylaws) which must be adhered to by all owners and occupiers. When the property is built, the developer will form a condo corporation, assigning owners a share of the corporation with the sale of each unit until ownership is entirely transferred to residents.
Before embarking on a condo purchase, it’s important to know the differences between buying a condo versus a property you’d own outright, such as a detached house. The requirements placed on owners vary according to the condo corporation’s bylaws, but there are several universal truths to be aware of. First, unlike buying a house, your expenses don’t end once the sale of your condo has closed. All condos have monthly fees, payable to the condo corporation, to cover the maintenance and repair of common areas. A portion of these fees is usually allocated to a ‘reserve fund’ that’s designed to pay for larger, scheduled repairs to the building. The roof, for example, may need replacing every 15-20 years.
You may also find that condo corporations impose restrictions upon their residents’ age, as well as the pets they’re permitted to own, and even whether an owner is allowed to rent out all or part of their unit. But not all distinctions are negative; water and gas are often included in the monthly maintenance fees for condo owners, reducing expenditure on additional utilities, and services like garbage, recycling and landscaping.
New versus re-sale condos
Once you’re set on condo living, it’s worth noting that there are several distinctions between buying a new condo and one that’s been previously owned (known as re-sale). Aside from the peace-of-mind associated with being the first occupier, buying a new condo may offer buyers the opportunity to ask for alterations in the build to fit their lifestyle. Units purchased ‘pre-sale’ (i.e. units that are paid for before construction on the building has finished) are often competitively priced compared to units sold when construction is complete. Not to mention, newer units are less likely to experience maintenance issues in the immediate future, and come with a level of new home warranty protection- more on this later.
However, pre-sale buyers risk the finished build differing from the architect’s plans, as well as delayed construction pushing back their move-in date. This brings us onto an interesting concept colloquially known as ‘phantom rent’ that comes to many as an unforeseen and unwelcome surprise. Phantom rent, or occupancy fees, are fees paid to the building’s developer during the period between taking occupancy and taking ownership of a new unit- i.e. from when you move in to when the unit is officially registered to you. Due to legal acts that effectively render owners as tenants until the unit is registered, it can be possible to pay months of ‘rent’ to the developer. These payments don’t count towards your mortgage, so be sure to factor in the additional costs. Buyers of pre-sale units should also be aware that their deposit will be tied up for the duration of construction.
Purchasing a re-sale unit avoids this issue and affords buyers the opportunity to view the property in person. There’s also little or no waiting period before you can move into your new home. Deposits for re-sale units are often much lower and typically there is no GST/HST to pay.
Conversely, purchasing a re-sale condo offers less flexibility in your choice of unit. With older buildings, modern communal amenities (such as pools and hot tubs) are less common, and, as mentioned, major repairs (that can cause an increase in monthly maintenance fees) are more likely to occur during your ownership. For newer re-sale units, you’ll only receive the portion of the building warranty that has yet to expire.
So, you know the basics of condo ownership and are ready to join 1.9 million Canadian condo-owners. But condos sell notoriously quickly, and you have no idea where to start. Here are 5 tips for potential condo buyers to consider:
1. Consider your financing options…
Chances are, you’ll require a mortgage to pay for the property. As mentioned, new units require a higher deposit than re-sale units, so expect to pay up to 20% of your condo’s value upfront. It’s a good idea to use a mortgage affordability calculator (such as ) to determine how much you’ll be able to borrow. Don’t forget to factor maintenance fees and utilities into your monthly calculations- these will vary depending on the property.
New, more stringent regulations for Canadian mortgage providers were introduced in 2018. Be aware that you may be subject to a mortgage stress test, so may not be able to borrow as much as you expect.
2. Get to know your unit…
It may seem obvious, but given the speed with which modern condo purchases close, it’s worth noting anyway. Take a moment to absorb the details of the unit in question. Arrange for multiple property viewings at different times of day to allow for as many variables as possible. Remember, that first viewing often comes with rose-tinted glasses.
Check what’s included with your unit. For example, is it furnished? Does it come with appliances? Are there any restrictions on interior decorations? If your unit includes a parking stall, ask to see it. Likewise with other amenities such as workout rooms, communal lounges or storage lockers. Now is also a great time to get to know your neighbours- don’t be afraid to ask them about the building. They’re likely to give you an honest opinion, and they have the benefit of experiencing the building at all times of day. After all, you plan on living there, so who better to ask than someone who already does?
3. Then get to know your building…
Once you’re satisfied with the individual unit, consider whether the apartment building as a whole meets your requirements. For example, some buildings may not allow pets, or may place restrictions on their size/weight. Ask about the security systems in place- is there CCTV or a security staff? Consider the physical condition of the building. If it was built before 1999, be sure to make sure it’s 100% rain screened to avoid Leaky Condo Syndrome. Similarly, find out whether there has been a recent building envelope assessment. A building envelope is what separates the interior and exterior of a building. This assessment will determine whether water is able to enter the property, or if major overhauls (and the costs that go with them) are in the near future.
Consider whether the demographics of the building suit your needs. Chances are, if you’re downsizing in your twilight years, you won’t enjoy sharing a building with 20-year-old college students. For those looking to rent the unit rather than occupy it, ask your realtor whether there are any rental restrictions placed upon the building and what percentage of owners are also renting. (The general consensus suggests that a higher proportion of rental units is less desirable, so some condo corporations place a cap on the percentage of units that can be rented at any one time.)
Finally, consider the age of the building and the protection that’s offered. Depending on its location, new buildings may receive a ‘2-5-10’ warranty as a legal requirement. This warranty provides 2 years of labour and materials costs, 5 years of protection on the building envelope and 10 years of protection on the structure. (Access more information on the 2-5-10 warranty.)
4. Then get to know your neighbourhood…
If both the unit and the apartment building are satisfactory, take some time to get to know the neighbourhood. Consider the things you’ll be doing most often; commuting to work, shopping for groceries, etc. Are there sufficient transport links close by? Is the area generally safe at night?
Get online to research whether there are any upcoming construction projects that may affect your quality of life or the future value of your property. You may also be able to find information on your neighbourhood’s (and potentially even your building’s) reputation.
5. And finally, get to know your condo corporation.
The final, and arguably most daunting step is to determine the financial and managerial well-being of your condo corporation. First, obtain a copy of the condo corporation’s meeting minutes. This is a record of everything that’s discussed during scheduled meetings over (usually) the last 3 to 5 years.
However, this timeframe may not provide you with sufficient scope to determine the building’s overall condition. Find out what the common complaints are and whether they were addressed, as well as how quickly the board arrived at a solution. And check to see if the condo corporation has a history of making one-time assessments to owners to cover large repairs like a new roof, instead of managing the funds they receive on a monthly basis to anticipate these expenses.
With the excitement of a new home, it can be easy to forget about insuring your condo. But, did you know that your condo corporation already provides (limited) insurance protection? Here’s how it works:
Your condo corporation holds an insurance policy on the building known as a ‘master policy’. The master policy is designed to protect you against the cost of replacing or repairing damage to your unit or the communal areas of the building. For example, if there’s a fire and the entire apartment building burns down, the master policy will pay for it to be rebuilt. So, if you’re already covered, why would you consider purchasing additional protection?
The protection provided by this master policy is limited. In the event of a loss, your condo would be restored to its original condition. But if you (or previous owners) have upgraded to hardwood floors, marble countertops or renovated the bathroom, you’ll be responsible for these additional costs. In some cases, this can mean paying for your renovations twice.
Also, like any insurance policy, the master policy contains a deductible. In the event of a loss, your condo corporation may decide to assess a portion of the deductible to you, or even assign the entire cost of the claim to you, if it can be shown that the damage was the result of your negligence. Finally, the master policy provides no protection whatsoever for your personal property or your liability. To protect these exposures, Square One provides Condo Owner’s Protection.
Condo Owner’s Protection
Condo Owner’s Protection is an optional coverage that can be added onto any Square One condo policy. The basic condo policy protects both your personal & premises liability and your personal property. Condo Owner’s Protection improves upon this coverage by protecting the improvements made to your condo, as well as any assessments that your condo corporation levies against your unit for covered loss or damage to the common property.
Condo Owner’s Protection also includes access to our suite of Condo Concierge Services. This provides free access to a telephone legal advice hotline that can help with any (non-automobile related) legal or tax issue. It also entitles customers to a professional review of your master policy. Simply send us a copy of the insurance policy and we’ll review it to check where you’re exposed to financial risk, and recommend changes to your policy to address them.
Square One’s condo policies start from only $40/month. To find out how affordable personalized condo insurance can be, click here to get a quote.
Frequently asked questions
What happens if there’s a renter in the unit when I purchase a condo?
Purchasing a property that’s already tenanted presents some hurdles. Not only must the lease expire before the tenant is required to move out, but the tenant is also entitled to peace and quiet during their tenancy. As such, you may find it more difficult to schedule multiple viewing appointments at a property that’s being rented, as the landlord is required to give notice to their tenant.
Are property taxes less for condos?
The short answer is… maybe. Property taxes are calculated based on the market value of a home. Generally speaking, condos are cheaper than detached properties, so the resulting tax bill may reflect that. Of course, this depends on the property in question, and you should consider that property taxes aren’t included in your monthly maintenance fees.
What’s the difference between a condo and a townhouse?
The terms condo and townhouse are easily confused; one refers to a type of ownership, the other to a type of construction. As mentioned, the defining characteristic of a condo is shared ownership. In that sense, many types of buildings can be condos. In fact, most modern townhouses use condo corporations to manage communal areas. As such, they become condo-townhouses, with the latter part of the name describing a type of construction whereby each of the sidewalls is shared with another dwelling- except in the case of end units, which only have one shared wall.
Looking for more condo-related information? Check out this in depth article on the differences between townhouses and condos. Or for more information on protecting your newly bought condo, contact Square One at 1.855.331.6933