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You’ve probably seen the recent news stories about all the angry people who bought pre-construction condos at the ill-fated Trump Tower project in Toronto. There are more lawsuits flying around than I can count, and much as I’d like to feel bad for the buyers of this condo-hotel, I’m really struggling with it all. My thoughts on the fiasco:
- The right to Assign: Many Trump buyers didn’t realize that the contracts they signed precluded them from assigning their condos before completion. (In an assignment, a buyer sells their contract with the builder to another buyer before the building is completed. They don’t ever actually ‘own’ the condo – but they stand to profit from any increase in value.) Buyers: Read what you sign!!!!! And if you don’t understand what an assignment is, get a REALTOR to represent you.
- Condo-hotels are notoriously hard to finance. There are only a few lenders in the city who will provide a mortgage for a property that is part condo and part hotel because lenders consider those properties to be commercial properties. This isn’t anything new – it’s been that way for years. Buyers: Don’t assume you can get financing for a particular new condo project because you have great income and credit.
- Condo-hotels are considered commercial properties for tax purposes too. Again, nothing new. Commercial taxes are significantly higher than residential taxes, so if you budgeted taxes at $2,400 a year because that’s what you pay for your house, don’t be surprised when your condo-hotel tax bill is $6,000. Buyers: Don’t make uninformed assumptions!
- If you can’t afford it, don’t buy it. The media is enjoying sharing the sad tale of a nurse who can’t afford to close on the $1 million dollar condo she bought with their nurse’s salary. I have to ask myself: what made her think it was a good idea to sign a binding contract to purchase a million-dollar condo she obviously couldn’t afford? The only thing in writing is her committment to close…any other plans she may have had for it were simply hopeful assumptions. Just because the sales brochure tells you they think you can rent it at X dollars a night, doesn’t mean you can. Buyers: Don’t be stupid!
- Condo fees go up – they always do. New condo developments set their estimated condo fees many years in advance – is it a surprise that they’ve gone up 7 years later? It’s also naive to assume that the builder isn’t using the lowest possible condo fee estimate to get buyers to buy. Buyers: Always assume costs will go up and budget for it!
- A contract is a contract. OK, the Securities Commission et al may find that unfair sales tactics were used, but contracts are just that–contracts. Buyers: Don’t ever assume you can get out of a contract. That’s a particularly dangerous assumption. If it were that easy, what would be the point of a contract?