A common question is whether to a buy a new or resale condo. As we’ll explore below, each type offers advantages compared to the other. We’ll also go through some questions that will help you make a clearer decision.
A new condominium is, as you’d expect, a new construction. The condo is purchased directly from a developer. A prospective buyer can purchase into the development at any time (whether presale, under construction or recently finalized). Condo prices are typically lower than those of resale because the buyer purchases at a fixed price rather than one at the mercy of the real estate market.
In quickly expanding real estate markets, new condominiums can be an attractive investment as the buyer pays current day prices for a property which will be delivered in months or years down the road. For example, if a developer is selling a new unit for $300,000 deliverable in 1 year in a market expanding at 5%, by the time the owner takes possession that same unit will cost $315,000.
New condominium projects are also appealing to some buyers as they offer the option to customize a unit to one’s liking. You’re also likely to get the latest décor trend. Another financial advantage in favor of new condominiums is that costly renovations and upgrades won’t be necessary for several years.
In buying a brand new condo, persons with allergies don’t need to worry about the previous owner’s pets leaving dander and hair in every nook and cranny of the unit. The same applies for persons who are particular of their dwelling’s cleanliness: no one made a mess before you and you won’t be cleaning unknown sticky patches when you move in!
A buyer can purchase a condo directly from the developer without the need for a real estate agent. However, some real estate agents are also able to assist buyers and in some instances, can negotiate with the developer on your behalf.
Sight unseen: In most cases, the buyer is purchasing from the developer before seeing the unit. For some, visualizing their future home from floor plans can be difficult, if not impossible. Additionally, depending on the conditions signed during the purchase, the floor plans can change during construction with no consequences to the developer. This may be problematic for some who already have furniture they want to move in.
Delays: Subject to all the variables of construction (rain, rezoning, accidents, zealous inspectors, etc), developers can give an estimated occupancy date. This can be an issue for the condo buyer who is selling real estate before moving in or families moving from a different city.
Aches and pains: All new buildings go through a period of “settling” in their first years. Minor shifts in the building’s structure cause some blemishes to surface during post-construction. These issues require sorting out with the developer. In some developments, work that was subcontracted may not have been completed to acceptable standards which may require construction workers to come in and finalize the work (at the developer’s cost) while you are living in it. The majority of the time, this work is cosmetic. However, in some instances the work could be major and an inconvenience to the residents.
Incomplete construction: If you bought pre-construction, the developer will likely want you to take possession as soon as the unit is livable. Because some projects are large undertakings, the owner of a new condo may live in a building where other portions of the project are underway. For example, a friend of mine purchased a new condo and moved in the New Year but the gym and pool weren’t available until the end of summer. The main lobby was half done for a few months and construction dust meant more frequent cleaning was required. Being on a budget and having found her dream condo, this didn’t bother her. This could have been an issue for other types of buyers.
Unknown health of the condo association: Condo associations are formed after the developer delivers all the units. This means that the association starts from scratch, elects a board and begins taking over the building. There is therefore no “track record” of how well the condo building is being managed. When buying new, one cannot know if the condo association will be a competent one 5 or 10 years in the future.
Taxes: Depending on where you live, you may be charged a sales tax on a new condo purchase. In Canada for example, the government sales tax (GST) must be paid on units that were never lived in. Most developers will roll in the GST into your purchase agreement which increases mortgage payments. It should be noted that in some areas or depending on your financial situation, some tax breaks apply which could avoid you having to pay the entirety of the taxes. Resale condos, on the other hand, typically don’t have sales taxes associated to their purchase.
On the other hand, you have resale condominiums which are units that are being sold by the current owner. In some areas that are already established (ie waterfront in Vancouver), buyers don’t have the option but to purchase resale condo.
Resale purchases come with the advantage that you can see the condo before buying it. Additionally, if the condo building is old enough, your real estate agent may have industry knowledge of the building’s history, if it is properly managed and what type of neighbors live in it. This is where a well-connected and knowledgeable real estate agent is worth his or her weight in gold.
Being already built and lived in for a few years, the condo buyer will be able to more easily assess if the development has settled in the neighborhood. Have restaurants and commerce sprouted nearby?
For savvy investors and even well-informed first time homebuyers, purchasing a used condo offers interesting investment opportunities. For example, I once purchased a condo in an unsavoury neighborhood from a couple who were expecting their first child. Selling quickly was their priority, even though market trends suggested the neighborhood had begun gentrifying.
Higher condo fees: Depending on the year the condo development was built, condo fees may be a bit higher than in a new construction. Older condos typically need more maintenance and repairs than new ones. The potential resale condo buyer can minimize the risk of unexpected condo fee rises by having a real estate agent and/or lawyer go over the condo corporation’s financial statements with you.
Market prices: Unfortunately for buyers in “hot” markets, resale can sometimes be more expensive than new purchases as the prices are dictated by market trends. For example, a person living in Vancouver at the height of the housing bubble would have had a hard time getting into the real market. If a property was worth $500,000 and rising at 10% per year, that property could be said to have risen $50,000 in a year! A 5% down payment would therefore go from $25,000 to $27,500. An extra $2,500 for some families makes a big difference! Once again, a good real estate agent can help you navigate these issues by negotiating a lower price with the current owner.
Renovations: Depending on the age of a unit and your design tastes, renovations may be required when purchasing an old condo. Not only should the price of these upgrades be factored in, but also the inconvenience of living in a renovation.
Energy efficiency: older constructions will usually have been built with materials that are unlikely to be as energy efficient as today’s. This may not be a significant issue in markets with temperate climates like Vancouver, Toronto, New York or Seattle. However, this is important in extreme climates like Montreal, Phoenix or Miami where heating and cooling costs can amount to large monthly expenses. Potential condo buyers in areas where energy costs are high should take a closer look at the building’s construction materials that will affect their monthly electricity or gas bills such as the type of window, roof, siding and construction type (wood or concrete).
In deciding whether to buy a new or resale condo, there is no steadfast rule of thumb. Instead, one has to go through a series of questions based on practicality first, then on intangible comparisons second.
Keeping in mind the pros and cons listed earlier in this article, the three major questions that will help one decide whether to buy a resale or new condo are:
Question #1: Are new or old condos available for in the area?
For resale condos, this question can be answered by consulting publicly available tools such as the Multiple Listings Service (MLS). For new condo developments, it gets a bit trickier. A combination of Google searches, going through the local newspaper, reading local real estate blogs and speaking with a real estate agent will get the broadest and spectrum of information.
Question #2: Is there a timeline to the condo purchase?
If relocating from another city, it may not be possible to wait for a new construction to be completed. In this case, resale may be the only option. However, new condos shouldn’t be discounted. In markets where too many new condos are built at the same time, developers may be attempting to get rid of units they couldn’t sell in pre-construction.
Question #3: Are the resale condos in the area affordable?
There’s no point getting one’s hopes up if the targeted resale market is out of budget. By consulting tools like MLS, one can get a good sense of what the average condo cost is in an area, the price of municipal taxes and the average condo fees. From there, a conservative budget overlooking all aspects of one’s finances should be drafted. If resale condos in a specific area are out of the potential buyer’s price range but ground is being broken nearby, a new condo may be the only option.