By Carl Langschmidt
It is amazing to me how many pre-construction condominiums have prices that are out of whack! By out of whack, I mean disconnected from prices in the resale market.
Don’t get me wrong – a new condo is obviously better than a 20-year-old condo, but it’s not worth much more than a recently built comparable building that is actively trading in the resale market. Not to mention, if you’re buying pre-construction today, you should be paying a price based on today’s resale market values.
Our advice and strategy for determining how much is too much for a pre-construction condo is to simply find a fairly new comparable condo – ideally in the same location – as a base for comparison when analyzing a pre-construction investment. If you have used our website, you will know that Condos.ca can show you the dollar per square foot trends and price ranges for any resale condo in Toronto.
Why do pre-construction condos “out sell” the resale market? It’s a combination of many factors. Some are quite controversial but worth mentioning.
1. Commission: Developers pay nearly double the commission to sell a new condo vs. a resale condo (four to five per cent vs. 2.5 per cent on the resale side).
2. Inaccurate market research: Developers support their prices to investors with somewhat misleading data from organizations like RealNet Canada that report price per square foot trends of other new condos by compiling price data from developer’s price lists and not the actual selling prices.
Investors were told that the average new condo price in the core was $961 per sq. ft. Obviously this makes any developers’ prices look cheap, so we investigated this further, as the number was substantially higher than our research within the resale market. RealNet provided the list of buildings used and now that many of the condos on that list have registered, it clearly shows a disconnect between the asking prices and actual selling prices.
3. Hidden fees and additional costs: Developers do a great job at hiding the actual cost of a new condo. When you buy a resale condo, the price you see is the price you pay, while the price on a pre-construction condo has a list of added expenses. Parking and development charges are examples of a couple of extras that need to be added into the equation when evaluating investment potential.
At the age of 29, Carl Langschmidt ranked #39 for Royal LePage out of almost 15,000 agents across Canada. He says his secret to success is hard work and passion. He is a broker with Royal LePage Your Community Realty in Richmond Hill, Ont., and president of condos.ca, described as “the GTA’s most comprehensive condominium guide featuring exclusive building and neighbourhood price trend data.”
