A new Toronto report recommending hefty increases in property development charges is underlining the need to have a lawyer review pre-construction agreements prior to signing, says one Toronto broker.
“I strongly recommend each of my clients who are purchasing pre-con to have their real estate lawyer review the purchase and sale agreement prior to signing,” says Sandra Levy, principal broker with Always A Mortgage. “Some developers will allow an insertion of a ‘cap’ clause, while others will expect the buyers to assume all costs, including increases to development charges.”
For example, the fee to build a large apartment with two or more bedrooms would increase by 86 per cent, or anywhere from $23,036 to $12,412 by July 2014.
That sort of unexpected hit can be devastating to a client, says Levy.
“It is critical to a smooth closing that the purchaser is fully aware of what they are expected to pay out of pocket at closing,” she told MortgageBrokerNews.ca. “Between land transfer tax, legal fees, down payment and builder adjustments, the final bill can be a shocker if you don't know what you signed.”
According to city staff, the fee increases are designed to offset the some $12 billion worth of development-related infrastructure projects planned for Toronto over the next decade.
Andrew Galea, a mortgage agent with Calum Ross
Mortgage, says he tries to limit builder charges, but also instructs clients that there is that inherent risk of higher costs when buying yet-to-be-built units.
“We always advise our client to try to cap their builder charges to about 2,500-5,000 if possible,” says Galea. “We always make our clients aware of potential changes that may happen when buying pre-construction.”
Toronto currently has the lowest development charges in the area, with most surrounding municipalities charging double that of the city. For 2012, Toronto collected $150 million in development charges.
With the extra market pressures – especially for condo buyers – brokers need to impress upon the client the need to have extra cash available prior to signing.
“With lenders cutting back on loan to values, and the ever-tightening mortgage market, having access to additional funds prior to closing is becoming more and more important for our Toronto condo purchasers,” says Levy.