Buying a Condo: The Ultimate Guide to Buying Pre-Construction
"I looked at the adjustment sheet provided by the builder; I saw all those zero's and my heart sank. I was making the biggest purchase of my life. And I hadn't really realized it until that point, but I had no idea what I was doing." - James, Condo.Capital Reader, on Buying a Condo
The anxiety rises.
Buying a condo can be a stressful affair. After all, you are making one of the biggest purchases you'll ever make.
Whatever you decide, you'll have to live with it.
I mean, live in it.
The average price of a condo in the U.S. as of November 2016 was $271,000. This is by no means a small purchase, as a monthly mortgage on this amount will run about $1,000.
The questions come flooding into Condo.Capital on a daily basis:
- Where should I buy?
- When is the best time of year to buy?
- Can I negotiate with builders?
- What finishes should I pick for resale?
- Is it better to be on lower or higher floors?
- Are upgrades worth it?
- Should I buy a parking spot?
- What are reasonable condo fees?
- Is a condo mortgage different than a single-family home?
- What questions should I ask my builder?
And the list goes on.
Skip to our condo buying FAQs if you want our expert answers to these specific questions.
For now though, let's focus on buying your new condo because there's a lot to discuss.
But hey, we’re here to help. So grab a drink, stay a while, and enjoy the view.
We're about to demystify the process of buying a condo.
Buying a Condo: Is It Right For Me?
Before you start hunting condos all around your city, you need to ask yourself one critical question.
Are you suited for this type of home?
Keep in mind that you won’t have as much space as you would in a house, but you won’t have to mow the lawn or shovel snow.
Condo living is ideal for people who want a cozy home in an urban setting at a fraction of the cost you’d pay for a house.
And by fraction, we really mean that.
Think about that for a second... Good to go? OK, let's continue.
Not Just Price
Although most people consider buying a condo for convenience and simplicity, the amenities are what pushes them over the edge.
Rooftop terraces, pools, saunas, steam rooms, gyms, and what some now refer to as an urban chalet.
Ya, I didn't know what that meant either. But, it's a fancy word for a common area or lounge.
Some condos even have wine cellars!
Some condos even boast theaters, and even guest rooms for when your in-laws visit - and you don't want them staying with you.
You know what I mean!
Condo's are ideal for people who want to live, work, and play in their surrounding area.
Downtown condos are ideal for young professionals, or young families saving up for a larger home.
Condo living takes the stress of maintenance off your shoulders. Because, through your condo fees, you pay someone else to do that.
Condo and HOA Fees: What You Need to Know
Condo and HOA fees pay for everything from cleaning, to maintenance, to security, insurance, and creating a common fund for when something unexpected happens.
In general, condo fees are a good thing because they ensure your building runs efficiently.
Condo fees can range anywhere from $0.30 per square foot to $1.00, depending on the age building, its amenities, and the management company.
The Newer the Better
The general rule is that the older the condo, the higher the fees.
This is because older buildings require more maintenance, simple as that.
Buying a Condo Hot Tip: This is why at Condo.Capital we always suggest people strongly consider new buildings.
Because condo fees are much cheaper, usually around the $0.30 per square foot range, and the building and unit are almost always covered under warranty.
So, what if you buy a 1-bedroom condo, at 600 square feet, in the heart of Downtown Atlanta? GO FALCONS!
What will your fees be?
You can expect to pay approximately $180 a month if the condo is a new build, or about $300-$400 a month if it's an older building.
Unless the location is your number one priority and there are no new builds in that area, consider buying something new.
The First Step: Get Approved
Before getting too far down the condo buying road, talk with your broker or mortgage specialist.
Tell them your plans, what you think your budget is, and how much you have saved for a down payment.
Typically, with first-time home buyers, lenders require a 5% down payment. If you have more, then that's great! It will reduce your overall monthly payments.
Talk with your broker, and get pre-approved.
This will give you the ammunition to go and speak directly with a builder's sales team.
Having a pre-approval tells them your serious, and gives you the certainty that you'll be approved for a particular mortgage amount.
Paper Condos: The Challenge of Buying New
We know, buying a new condo can be a bit of a challenge. It's why we started Condo.Capital.
And the reasons for saying this are fairly obvious.
First of all, you can’t know what the place is going to look like when you move in, so you have to do with a showroom model, paper layouts, and some measurements.
The builder may not even have a showcase model of the condo you want, so you can't even physically see your condo.
Buying a Condo Hot Tip: Visualization is important. In these cases, physically map out your condo on a larger area than your future condo.
If your condo is 600 square foot, head over to your friend's house who has a 1,000 square foot basement.
Take your measuring tape, layout, and physically map out your condo on the ground.
This will give you the best idea of what your condo will look like. And, if Gammy's antique couch will fit in your living room.
Or, consider a digital design tool that helps you create and visualize your condo space.
And keep in mind that your new condo will be your blank canvas. You can decorate everything exactly the way you want it.
You can Pablo Picasso the crap out of your new home!
Buying a Condo: Finishes and Appliances
Which brings us to your condo finishes. Thankfully, most new condo developments have a designer who you will meet with to pick out all the finishes you want.
Or, in my case, I put my interior design skills to good use and decorated my condo all by myself:
To be fair, I'm banking on a 1960's revival.
You will get to pick everything for your new condo -- from flooring, to paint color, to cupboard finishes, to bathroom tiles, and more.
And another great thing about new condos, is that the appliances are new as well.
Most builders will provide a stove, microwave, dishwasher, fridge, washer, and dryer. All of which are brand new, and come with a warranty.
It's nice getting new stuff!
Condo Builders: Things to Consider
The best way to protect yourself as a condo buyer is to choose a builder that has a portfolio of successful buildings in your city.
Ask the builder where they have built before, have there been any delays in delivery, how long have they been in business, and do they expect any delays with their current building.
Outside of this, here are a few other ways you can ensure your builder isn't shady:
Sometimes developers will throw in perks to a sale. The most important of these is parking.
Depending on the development, a parking spot can cost as much as $60,000.
If there is any incentive to get a parking spot at a discount, it should be seriously considered. Parking spots help with resale.
Other perks may be non-essential, but are still worth considering.
For instance, are appliances included? Granite countertops? Upgraded cupboards? Hardwood? A better view? Or a bedroom pool?
Hey, it never hurts to ask!
Fees and Taxes
When buying a condo, fees and taxes can fluctuate depending on your jurisdiction and the developer.
A pimped out development with three pools, a waterfall, and wine cellar, will increase your monthly condo fees.
A more minimalist development will cost you less a month. Decide early on what type of condo building you prefer.
Also, some builders cover certain state/provincial taxes. Depending on where you live, this can save you thousands.
So make sure to ask the sales representative what extra fees and taxes are on top of the purchase price.
For the the record, my bedroom pool would have cost me an extra $1.2 million...so I passed...for now.
Never Hurts: A Second Opinion
Hands down, the best ways to help yourself is to speak with an expert.
This could be a local broker, realtor, or one of the many professionals at Condo.Capital.
Don't take advice from Uncle Dave who thinks he knows everything about everything, but still lives in a van down by the river.
Talk with someone in the know; they will be happy to assist at no cost to you. Why not?
You're not an expert, nor is Uncle Dave. A real estate professional will have critical information that you would have no way of knowing.
This includes the history of builders in the area, and their reputation. Or, local knowledge about future developments.
You don't want to buy a condo on the waterfront, only to find out next year that they're building a massive Naval base next door.
Well, maybe that does appeal to you. No judgment here.
The point is, consult an expert and build your knowledge. This is why you're reading this isn't it?
Buying a Condo: Better Safe Than Sorry
Don’t hurry. Seriously, don’t get too excited from the very first meeting with a developer's sales team.
Let’s face it; their priority is to sell you that condo. Even if you like it, wait until you’ve seen other plans and developments in your area.
Ignore a perceived sense of urgency by a developer or salesperson. Do your due diligence.
Buying a Condo Hot Tip: In some hot markets, you may need to act quickly. In this case, plan a full day to visit a number of different areas, developments, or condos with your realtor. Then, go home, get some wine, order some food, and go over all the information you received to make your final decision.
Create a simple checklist: what are the fees, purchase price, size, amenities, upgrades, etc. Check out Condo.Capital's easy to use condo buying checklist.
Taking Finances Into Account
Although the location is an important factor to consider, all of the associated financial details are just as critical.
Yes, you won’t have to spend time thinking about the state of your roof if you live in a condo, but when you’re comparing purchase prices, you must take the monthly maintenance fees into consideration.
Know that these only go up every year, so if your budget is razor-thin already, you may want to reconsider.
In the coming years, you may be asked to pay for what is called a 'special assessment.' These are large unexpected expenditures like a new roof, windows, unexpected repairs, etc.
With a new condo, these aren't typically an issue because everything is new and covered under warranties.
But, with older condos and resale condos, you need to ask the question: have there been any special assessments? If not, has the condo board anticipated future replacement costs of things such as roofs, pool linings, etc.
Before you sign on the dotted line, ask questions about all these details.
Buying a Condo: Talk the Talk
Communication is key. With your realtor, if you have one, with the sales team, with your broker, and most importantly, with with the developer.
As you’re buying a pre-construction condo, the people in charge of its development are the ones you’re going to find the most relevant.
They’re the ones you should ask about the construction plans in the area around the complex, for instance.
Or, if the builder plans any future buildings or phases - like right in front of yours!
It would be pretty pointless to pay extra for a condo on a higher floor in the hope that you’ll get a fantastic view, only to find out that a year later, it’s going to be blocked by another building, right?
We will constantly remind you about the importance of collaborating with a professional team – ideally, people that specialize in condos.
Buying a Condo Hot Tip: Your condo purchase team should include at the very least the following people: broker or mortgage specialist, lawyer or notary, developer, and a local expert.
What do we mean by a local expert?
This can be someone you know who is familiar with the market, a realtor, a Condo.Capital expert, or someone who has a finger on the real estate pulse in your area.
Realtor: Quick Word of Caution
Realtor's get paid a percentage commission when they sell a property. When it's a resale, it's an easy percentage of the final sale price.
But what about pre-construction condos? Well, they don't get that percentage typically. Some builders offer referral incentives, but they typically aren't as lucrative as a resale for the agent.
Keep this in mind! Pre-construction condos tend note to be as lucrative for realtors, unless that is their specialty, so beware of a realtor who try's to steer you away from buying a new condo.
Their motives may not be entirely in your best interest.
That said, the overwhelming majority of realtors are honest and will be up front about their compensation. Ask them the question.
Further, many realtors specialize in pre-construction condo sales, so seek out those ones should you choose to go that route.
Get your team ready for action! Communicate with them early, let them know your plans, and get advice wherever possible.
You've Signed on the Dotted Line
You've signed everything, picked your finishes, and settled everything with your broker.
Finally, the hard part is over.
Sit back? Relax? And wait for your new condo delivery? Yes, yes, and yes.
But there are a few other things you should consider doing during this downtime.
Because there is often a huge time lag between when you obtain financing approval, and the delivery of your condo, consider setting a reminder to yourself to contact your broker prior to delivery.
This should be done 3-4 months from your delivery date.
Maybe the lender will want updated documents, so better you proactively reach out to them, than wait to get those requests at the last minute.
Also, reach out to your lawyer/notary 3-4 months out to ensure you are aware of all of their requirements - including how much you will owe them.
Buying a Condo Hot Tip: Set a reminder four months before the delivery date to contact everyone - broker/mortgage specialist, lawyer, builder - to ensure everything is on schedule, and no new requirements are needed.
Final Thoughts: Bottom Line is...
Being a first-time buyer may be an uncertain time because you've never done this before.
And that's OK!
Therefore, you need to look out for yourself, and more importantly, you need to make sure that you’re thoroughly informed about absolutely everything that may have to do with condos.
You've reached the end of this guide, so you're at least informed about buying a condo and what to expect.
Believe us; it’s not worth taking any risks with a large asset purchase like a condo. You’ll be living in it after all.
Along the way, don’t forget that buying a condo is a fun ride, so try to enjoy yourself.
Happy buying everyone!