Recently, there were two homes on the market with the same offer date and my clients were trying to figure out which one they would offer on – one in Port Credit, Mississauga and the other in Rathwood, Mississauga. We ultimately decided on the Rathwood property, but interestingly enough the following day the Port Credit home was still on the market (it did not sell on offer night).
A very similarly finished and sized unit in the same condo townhouse complex sold within one week on offer night for $675,000 – so why, one month later did this other unit priced at $599,000 not sell?
Toronto and GTA real estate is on fire right now, especially at this time of year with a larger deficiency in available listings versus number of qualified buyers. Multiple offers have become the norm, and developed neighbourhoods with excellent school districts are drawing in flocks of buyers. The home in question is in Port Credit, Mississauga which checks the boxes of the aforementioned criteria – it’s in the Mineola PS and Port Credit SS districts which both have A level EQAO ratings, is walking distance from the Port Credit Go Station making for an extremely easy commute to the city, and is a developed neighbourhood with lots of unique shops and eateries only a stones throw away (not to mention the proximity to the lake).
The property itself boasts three bedrooms, updated washrooms, and a functional floor plan. It’s an all brick condo townhouse with low maintenance fees that cover many inclusions. Anyone who has looked for a home in this neighbourhood could tell you that you would be hard pressed to find one available for under $1M. This property had the makings of a heated bidding war, but it’s now three days later and it’s still on the market.
Review of the condo corporation’s financials (through a status certificate, a document issued by a condo corp that provides a snapshot of the current status of a condo) showed that the Condo Board sent a notice to all unit holders in December 2016 indicating that the most recent reserve fund study (in which the condo corporation determines whether there is enough money in their accounts to cover expenses of the corporation) found the funds available were insufficient to cover discretionary updates to the condominium complex. At this point the condo board decided to have each unit owner cover the difference required for the discretionary updates in one lump sum payment of approximately $10,000, commonly referred to as a special assessment. What this means to buyers is that if the property was to be sold with a closing date before this payment became due, the new buyer could be responsible for covering it.
Is this reason enough to walk away from a great property? It seems many buyers felt that way – although there are ways to still protect yourself in a situation like this (yes, in this case you can have your cake and eat it too).
To protect yourself as a buyer in this situation your agent can add a clause requiring the seller to cover the cost of the special assessment should it become due after closing. This clause is referred to as a holdback provision in the agreement, where the buyer’s lawyer would withhold funds from being transferred to the seller with the agreement to use the funds to pay for a special assessment, unpaid property taxes, etc.
The term “special assessment” can be scary to any potential condo buyer – but the most important details to look at are: what the special assessment is for and how much it is, how much money is in the reserve, and what the history of the complex is in regards to increases in maintenance fees and special assessments.
In the case of this condo townhouse, the condominium corporation was in good financial standing, and did not have a history of special assessments or higher than average maintenance fee increases – if anything, considering the inclusions and age of the complex the fees were actually quite low. That said, it is an older building and sometimes condo corporations make the decision to cosmetically update the complex and amenities (which was the case in this situation) – which can be a great thing for appreciation of the units. Since the spending was to be used on cosmetic updates (not to be used for regular day to day expenses), I would say this is not as detrimental or risky as long as the buyer is protected through the use of a holdback.
Although special assessments can be a red flag for a condo development, in this case the proposed assessment funds were to be used to update the complex which would potentially result in higher prices for the unit holders – thought of this way, it’s more like an investment into the complex. Many people invest in upgrading their homes - is this any different?
Nicole Harrington is a Sales Representative with Realosophy in Toronto. She specializes in using data and analytics to help her clients make smarter real estate decisions, concentrating on Toronto and the GTA, and hosts her own website: SheSellsToronto.com.