Statement of Adjustments from Hell
When buying a new condo, you need to be aware of the costs involved. Buying a new condo is not the same as buying a resale condo, there are additional costs you will incur on closing day.Ãƒâ€šÃ‚Â The sales people at the condo sales centres will NEVER bring any of these items to your attention.
A reader of this blog (not my client) recently emailed me asking for my advice/help after they got the shock of a lifetime when seeing their statement of adjustments on their new condo that they were about to close on. The person in question bought a large unit at Festival Tower a couple years ago when they were offering their 5% deposit program. The price of the unit including some minor upgrades was ~$840K. Imagine how you would feel if your lawyer told you you had to come up with $74K for closing costs (not a cent of which would go towards equity in the unit). The costs that the buyer had to pay on closing included:
- HST of $39K
- Land Transfer taxes of $19K (after the first time buyer rebates were applied)
- Tarion enrollment fee $1250+HST
- Legal fees – for interim closing and for final closing $1300+HST
- Property taxes pre-paid by developer $750
- Development Charges $2900+HST
- Occupancy fee not already paid for $2500
- 3 months common element fees for reserve fund $1800
- Water and gas hook up fees $1000
- Nickel and dime admin fees $550
- Nickel and dime disbursement fees, mortgage registration etc. $1200
Now obviously the BIG expense here is the HST. He purchased the unit shortly after the HST came into effect but shortly before developers universally started to include the HST in the cost of the unit. (If you bought a new condo post June 2009, you better check and see in your contract if HST was included.) Development fees, Tarion enrollment fees, and water/gas hook up fees are all examples of costs that buyers incur when buying pre-construction instead of going resale. This buyer was NOT an investor so this is HST money that he will never get back (see my previous post on the HST debate/question).
The buyer told me he was not expecting these closing costs and had to scramble to get the $74K in funds together just to close on this property and not be in default of his contract. Ouch. How can this happen?
This story once again illustrates what I have been preaching for nearly 4 years on this blog:
- Never buy a pre-construction condo without using a Realtor who is experienced and competent in handling pre-construction sales andÃƒâ€šÃ‚Â workingÃƒâ€šÃ‚Â with developers. Ask them what they can do to minimize or eliminate hidden closing costs.
- ALWAYS get your contract reviewed by a lawyer who is experienced in dealing with pre-construction condos and dealing with developers. Ask them what closing costs you will incur (according to what the contract says) on closing day. Go into your purchase with your eyes wide open.
Questions or comments? Do you have a story of how you were surprised when you saw your statement of adjustments? I’d love to hear about it. Contact me here.