This week, we received a question about doing market research on real estate developers and condo projects in Montreal.
Q: I’m planning on buying a new-dev condo in St Henri. How much research should I do on the researcher, and where can I find unbiased information?
A: Whether buying a new development as a pre-construction unit or at a later stage in the projects development, it’s always a smart move to find out as much as possible about the builder’s reputation.
There are 5 different points you should look into:
1. The builder’s background and past experience
Running a background check on a real estate developer will give you valuable insight into their track record and delivery rates. You might want to choose a developer with at least one successful project under their belt, rather than a brand new team.
Some ways of researching a builder’s history:
- Start with the developer’s website. Browse through their portfolio and have a look through pictures of past projects.
- Next, check client reviews on Google and Facebook for each project the company has been involved with. You could even go as far as cross-referencing on Facebook/Linkedin to verify that the reviews are not coming from company employees.
- An extra step would involve reaching out to previous clients – either online or by visiting previous projects in person and speaking to homeowners. Is there an open house scheduled in one of your developer’s condo projects? Perfect opportunity to have a peek at the quality of the interior finishings!
2. The project’s budget and financial plan
A developer’s financial plan is important to you, as a buyer, because it may effect whether there are delays in the project’s launch, the quality of the materials used, and the additional costs that homeowners will have to take on.
To check that the company is on track with their financing, you can:
- Ask the developer’s sales office or broker for a copy of their business reports.
- Obtain a copy of their budget from the management copy. The budget will include all expected fees. Generally speaking, the bigger the builder the better the budget.
- Compare the fees-to-market-price ratio of the project with those of neighbouring condo projects. If a condo is selling for $300,000 and the fees are $1000 a month, that’s a ratio of 300. The higher the price-to-fees ratio the better, when comparing buildings in the same area with identical amenities. High fees will affect resale value and may impact your ability to keep the unit as a rental investment, if you decide to move.
- How healthy is the reserve fund? Buying into an underfunded project may put all homeowners at financial risk. The status certificate of a condo will indicate any reserve fund shortfall, excessive borrowing or may signal future fee increases.
3. The project’s legal standing
When discussing with the developer’s sales team or broker, you will want to check that the project is in possession of:
- A land title
- Authority approvals
- Construction commencement approvals
- A building plan approval
At this phase, it would be helpful to have your own broker or a real estate lawyer help you decipher the terms and conditions in your buyer’s agreement.
Lastly, you will want to research the developer’s legal history online. Pending cases against the developer could indicate a drain on the company’s finances, which would be a red flag to you as a buyer.
4. The project’s pricing strategy
The most important research you should do on a new development project is a comparative market analysis, which determines fair market value in light of recent comparable sales in the same area.
If prices are higher than average, look into whether the higher cost is justified. Is the developer using better quality materials? Is the reserve fund bigger? The same logic goes for dramatically low pricing. If the developer is cutting corners in the wrong places, it could cost you in repairs and resale value, over the long run.
It’s also a good idea to discuss hidden charges and fees with your developer.
Buying a condo can be a profitable investment, at a much smaller price than a single family home, but it will require time and research when comparing options. Don’t hesitate to reach out to us for more information on any specific condo project or developer.