That Was Close!!

January 12th, 2010

The beauty of the business is that you never stop learning…and today was no different. One of my favourite clients (and close friends) is getting ready to complete her final closing on her brand new condo. She had bought her unit back in 2005 with different Realtor, and since then, lost contact with them. Since she and I are good friends I naturally offered her guidance in completing the deal. Even though she’s bought resale condos in the past, with preconstruction it’s a whole new ball game.

Whenever one buys a condo, they should be prepared for two closings. The first is when the owner takes occupancy but not possession. The second closing occurs after the City has inspected and registered the building for final occupancy. For the past 6 months she’s been paying a “phantom mortgage” to cover the various costs associated with running the building in the interim. Now the time has come for the final closing and all the steps that go with it. The developer will send over a statement of adjustments to the buyer’s lawyer. The lawyer will then calculate the other expenses that are due. I.e. legal fees, taxes to name a few. The combinations of both statements are called “closing costs”

In my clients example everything seemed to be going fine until that matter of land transfer taxes came into play. Currently buyers in Toronto have to pay both the Ontario Land Transfer Tax AND the Toronto Land Transfer Tax (or the Mayor Miller Tax as so many of us affectionately call it). Her lawyer, who happens to practice out of town, called her up to let her know how much was needed. A few days later he called again to inform her she’d have to bring a few more thousand as the first number was off. This morning she got a third call informing her that they had forgotten to add the Toronto Land Transfer Tax to the final amount. This really had her upset. With closing only a day away and her being responsible for a much higher figure than planned, she was devastated. Now here’s where the lesson comes in…

After hearing her situation, I referenced back to a fact I learned a few years ago:

For parties with a purchase / sale agreement signed after December 31, 2007 with a closing on or after February 1, 2008 will be subject to the Ontario & the new Toronto Land Transfer Tax.

SINCE she signed the agreement way before the cutoff date, she shouldn’t have been responsible for this new amount. We called the lawyer and sure enough, we were right! Lucky for her we had caught the mistake before the cheque was handed over. Toronto will see a lot of condos entering final closing in 2010, be sure to check with your lawyer on final closing costs months in advance. Take special note as to when the contract was signed as it could be the difference of paying double the land transfer tax.

I could spend another 5 paragraphs blaming the various service providers for the blunder in the numbers, but instead here are a few points to remember when buying a preconstruction condo:

• Choose a Sales Representative who knows the market you’re buying in…i don’t just mean proximity to schools, churches and hospitals. If you’re living in a downtown condo you’re probably not driving so TTC location, ZIP car rentals and grocery stores are just a few of the places you’re agent should know the location of.

• In hot markets the price of a preconstruction condo is hardly ever negotiable, but many other aspects of the deal are! A prudent and experienced Realtor will be able to make you aware of other negotiable issues.

• Have a REAL ESTATE LAWYER review your contract. You’re given 10 days to consider the purchase, so having another set of professional eyes look over the contract is always a necessity! (sadly, still many people purchase condos without doing this simple step) AND be sure your lawyer also has experience in preconstruction condos! If you don’t have one, don’t worry. I always refer a few to my clients.

• Pick a Realtor that’ll be there to help you during the process. Having someone in your corner who does this for a living is always helpful …after all, it’ll be about 4 years until you’re “condo, sweet condo”

Happy Buying!!