By Condo Culture
Are you looking to purchase your first home, invest in a condo unit, thinking about potential options for relocating, or just want information so that when you’re ready to buy you know how to go about it? If so, our 2022 condo buyers guide will help you prepare and understand what’s involved, so that you can quickly go about your business with confidence.
__How to Navigate the Condo Buying Process __ Get familiar with condos, buildings, and markets that appeal to you
If you’re currently in a position to buy a condo or are gearing up to in the near future, then you have likely already started to browse listings and explore virtual tours around Kitchener, Waterloo, Guelph, Cambridge, or in the area you want to live in next. This is a good idea and an excellent way to get started with a wishlist so you have a general sense of buildings, neighbourhoods, pricing, maintenance fees, property taxes, what units typically look like, building amenities available for use, balcony views, and other unique characteristics that factor into your wish list.
If there are specific cities, developments, or buildings that you’re targeting, be sure to get a Condo Culture website account so you can track and get daily alerts when new listings go live, see sold price data, view off-market and exclusive listings, plus more.
__Connect with a real estate brokerage and find your agent __
The next step is to look for a brokerage and then an agent you want to work directly with. Look for a company that will take a genuine interest in helping you find a home that fits your needs and wants perfectly. Condo Culture is the expert brokerage for condos and townhomes across the Tri-Cities, Guelph, and beyond, and we have helped thousands of clients buy units across all the top condo buildings in the region. You want a partner that will listen closely to you to understand what your ideal new home will consist of, will professionally address your questions, will point out key things to be aware of throughout the process as it evolves, will offer expert insights and recommendations, can make introductions to real estate lawyers, mortgage brokers and other talent you may need on your team, and will be there with you from start to finish and beyond the sale, as well.
Once you secure the real estate brokerage you want to work with, ask for an introduction to an agent who has helped clients similar to you, and seems like a good fit to collaborate with from both an end-goal and personality perspective. It’s an interview-like process where you get to know a potential agent, ask him or her questions, leverage their expertise to refine your wishlist, and once you’re convinced that an agent can service you at a high level, you can move on to the next step to secure the capital needed to make a purchase.
Note that some prospective homeowners will get pre-approved for a mortgage first before hiring a real estate brokerage and agent, but the time is ticking as soon as the pre-approval is firm, so we recommend getting your real estate team in place prior to visiting banks or other lending institutions. You can reach out to capital sources early on to verify that a pre-approval is possible, but ideally don’t finalize anything until you have an agent in place who’s ready to go on day one when your pre-approval is official.
Get yourself pre-approved
So you’ve done some of your own research, got a real estate brokerage and agent on your team, and are excited about starting to actually go see condos and buildings in person. You just have one thing left to do before the exciting part happens where you get to explore properties - that’s going to a bank or another lending institution to get pre-approved. It’s ideal to meet with at least two or three banks or other lending companies to get two key pieces of information - the max dollar amount you can secure for a mortgage and interest rates for fixed and variable options. You will need to provide all of your financial information, assets you own, salary or wage numbers, letter of employment, and other pertinent details in order to activate your pre-approval.
Once you decide on the bank or lending company you want to work with and your mortgage pre-approval is locked in, you can go back to your real estate agent and give him or her a budget to work within. So if your lender can provide you with a $500K mortgage and you plan on kicking in $100K of your own money, your total budget is $600K. You typically have two months to get an accepted offer on a property before you need to get pre-approved again, and your mortgage rate is often guaranteed for four months. You can opt to go with a variable or fixed rate, and mortgages are typically between 1 to 5 years before a renewal is required. A variable rate can fluctuate over time depending on the Bank of Canada’s base rate change, whereas a fixed rate is locked in and your mortgage payments will be consistently the same. Mortgages also consist of an amortization period, meaning how long in total it will take to pay off your mortgage principal completely - it’s usually 20, 25, or 30 years. Your monthly mortgage payments will be slightly lower if you elect to go with a 30-year amortization, but you will end up paying more in interest over time compared to a 25-year mortgage, for example. You also have the option of paying money towards your mortgage on a weekly, bi-weekly, or monthly basis - the former helps to pay off your mortgage principal amount a bit quicker, whereas the latter is a tad slower.
Go view your potential new homes or investment properties
Leverage your agent’s expertise and knowledge of the market to make a shortlist of ideal properties to tour. He or she will put together a collection of condos that they feel will appeal to your wish list, and set up times with you to go see them live. Feel free to keep browsing online on your own too, make a list of your favourite condos, and send them to your agent so they can be added to their list also. You can also leverage online tools such as virtual tours to help save time and further refine your shortlist without the need for a physical tour. Be sure to communicate closely with your agent throughout the process, especially if your wish list or needs change at any time so the condo-buying strategy can be adapted as required.
Submit offers and reach an agreement to purchase
Once you find a property you are excited about, have your agent submit a smart offer on the condo. Keep in mind that it’s a hot real estate market now, and it could take some time before you and your agent make an offer that’s accepted. Also, perhaps more now than ever before, you want an agent who can negotiate hard on your behalf to get the place you want, and at a price that fits within your overall budget.
Each sales agent will let your buying agent know if offers can be made and looked at right away, if there’s a holding period on offers, if bully offers are accepted or not, and other possible ground rules their client may have. A bully offer, also known as a preemptive offer, is an offer to purchase a property prior to the date the seller has indicated they will start accepting offers. They typically consist of offering a high amount well above a listing price, and conditions are usually either minimal or there are none at all because it’s an all-cash offer, for example.
Your offer gets accepted and closing costs are ironed out
Once you have a firm deal in place, there will be closing costs to work through before everything is finalized and you can pop champagne to celebrate. You will need to budget approximately 1.5% to 4% of a condo’s purchase price for costs associated with the buy. So if you spend $600K on a place, be prepared to spend another $9K to $24K between legal fees, land transfer tax, title insurance, and other costs. You will also ideally want to have at least 20% as a down payment, otherwise, you will need to pay for mortgage loan insurance. This insurance is needed for down payments under 20% of a purchase price since lenders view these deals as being riskier for them, and they need to protect themselves in case a homeowner can’t make their mortgage payments at any point in time.
Using a $600K purchase price, if only 5% is used as a downpayment then your mortgage loan insurance will cost $22,600, at 10% it’s $16,740, at 15% you can expect to pay $14,280, and at 20% it drops all the way down to $0. You can lean heavily on your real estate agent throughout the process, and your real estate lawyer when it’s time to put everything into writing to get an official deal finalized. When buying a condo, it’s a good idea to hire a lawyer who has lots of experience with condo deals specifically as there are nuances that he or she can help you navigate - ask your agent for a quality recommendation if needed.
Take possession of your new condo
Congratulations, all of the i’s are dotted and t’s are crossed in the paperwork and your deal has officially closed - you have successfully purchased a condo, well done! Your agent or lawyer will give you the keys and fobs to your new place once the possession date is reached, and you will either move into your new home or will look for a tenant to sign a lease if it’s an investment property. If it’s an investment and you enjoyed the experience with your real estate brokerage and agent, hire him or her again to find a quality tenant who will cover most or all of your monthly expenses.
Working through the investment numbers
If you’re planning on buying a condo as an investment, you really need to map out how all of the numbers will work. So if your monthly mortgage payment is $2,000, maintenance fees are $500 per month, property taxes are $3,000 per year or $250 per month on average, and homeowners insurance is $150 per month, your total monthly cost is $2,900. In a perfect world, you can lease out your unit to a quality tenant for at least $2,900 per month to cover all of your expenses, but this isn’t always the case.
Let’s say you can lease your unit out for $2,500 per month, that leaves you with $400 per month to cover on your own. At first glance, this may not seem overly encouraging, but lucky for you that condo investments are multi-dimensional. First off, your property value will be increasing year-over-year, and, in fact, from January 2018 to December 2021, the average condo and townhome increased in value across Kitchener - Waterloo by a staggering $312K* - that’s more than $100K per year, on average. To learn why we believe local real estate values will continue to increase moving forward, click here. Secondly, the rental income you receive helps to pay down your mortgage’s principal amount, so with each passing month, you are owning a larger percentage of your condo as your mortgage number gets smaller and the market value of it increases. Additionally, you are building equity all along the way, and without even realizing it you’re building leverage you can use to your advantage. You can borrow against the equity value of your real estate investments, and roll that money into additional units to effectively grow your emerging portfolio.
You’ve got questions, we’ve got answers
How do real estate brokerages and agents get paid?
Brokerages and agents get compensated for their time and effort from the sellers of a property, and it’s typically in the 4% to 6% range of the sale price. Brokers first get paid and then any agent involved in a transaction gets their fair share depending on what the split percentages look like. As a Buyer, you don’t pay your agent any fees or commissions. They are working on your behalf and are only compensated (through the Seller’s Listing fee) if they are able to help you successfully secure a property.
How much can I expect to pay in monthly maintenance fees?
Every building sets its own monthly maintenance fees for condo owners to pay depending on many variables including amenities offered, but it’s typically in the range of $0.50-$0.80 per square foot. So, if you own a unit that’s 600 square feet, you can expect to pay, on average, between $300 to $480 per month in maintenance fees.
How can I avoid getting sucked into bidding wars?
With very little condo supply across Kitchener - Waterloo and lots of pent-up demand, bidding wars are becoming increasingly common. You should never feel pressured to engage in them, and take a hard stance with your maximum budget so you don’t pay more for a condo than you can afford. In a hot real estate market you need to be extra patient and it’s important that your real estate agent is also, so you don’t feel the need to make a move when one isn’t realistic. Being happy with your eventual purchase is the most important thing, so don’t buy something just for the sake of buying something - when the time is right your offer will be accepted and you can feel proud about your new home or investment.
Timing is everything, so be sure to view condos as soon as they hit the market, put in an offer via your agent as quickly as you can, and see where negotiations go. A great agent will always have your best intentions in mind ahead of their sales commission, so if you ever feel as though your needs aren’t the most important piece of the puzzle anymore, then it might be time to move on to another agent or brokerage altogether. At the end of the day, you want to buy a condo that you genuinely love and at a price that you feel comfortable with, anything else will leave a bitter taste in your mouth and make you doubt your purchasing decision. Also, keep in mind that pre-construction condos are a fantastic idea as they will help you to avoid heated bidding wars, and their values will rise while they are being built similar to the resale condo market.
How do I know what condo prices should be?
Every condo selling agent has his or her own listing price strategy and condo owners typically have an ideal number in mind that they ultimately want to achieve. Whatever a condo selling price ends up being is dictated by what the market will bear at that given time, and whichever party offers the most money will typically be awarded the deal. An agent will run a sale price report that includes recent sales in a building or area which will give their buying client a rough idea of what to expect to pay, but each listing and deal is unique since buyer pools are constantly changing.
Do you have a question(s) that wasn’t answered in our condo buyers guide or in the Q and A above? If so, reach out to our informative team to get the answers and support you need.
There is certainly a lot to keep in mind before, during, and after buying a condo, but our 2022 condo buyers guide should help you understand what’s involved at a high level. Above all else, build a quality core team consisting of a real estate agent, mortgage broker, and real estate lawyer who has deep condo deal experience, and everything will be much more manageable from start to finish.
Let us help you buy a condo whether it’s your first purchase as a homeowner, your first investment property, or somewhere in between. Get in touch with our team now or drop into our Condo Real Estate Store at 191 King Waterloo underneath the Bauer Lofts, so your condo-buying process is poised for success right from the beginning.
*Average sale price statistics from the Kitchener-Waterloo Association of REALTORS® for condos and townhomes from January 2018-December 2021. Source - ITSO Real Estate's MarketStats portal on February 1, 2022.