Yatter Matters

The current fiasco over the collapse of the Sophia development, serves purpose to remind those considering a pre-sale purchase of the potential pit falls inherent in these transactions.

Earlier I posted Wendy Mesley’s Condo Crunch report on the pitfalls of buying a pre-sale residence.

The Financial Institutions Commission of BC published a document in August of 2007 that IMO should be at the front of all agreements involving a residential pre-sale.

The following is a summary of that document. The full text is here.

How Does it Work?

• A residential unit is sold before completion of construction
• Typically the sale occurs two years before completion.
• The unit is sold at a fixed price
• Deposits are taken to be held in trust by a lawyer, a real estate brokerage, or notary. If deposit protection is obtained, the deposits may be released to the developer.
• If the development does not proceed the contract is terminated and deposits returned.
• No interest will be paid if it was not a requirement of the contract.

Get Advice

• have a Realtor® explain the details
• consult with a lawyer about your rights and obligations

Make Certain You Understand the Disclosure Statement

• you should be provided a reasonable time to read it
• under the Real Estate Development Marketing Act you the right to cancel the purchase within seven days

The Risks

Some reasons a development will not proceed to completion:

• inadequate sales
• financing
• permits
• higher than expected cost of construction
• can’t find skilled workers

What it Means to You When

When the Development is Delayed

• contract can be terminated
• contract can be extended
• higher price can be demanded if extended
• agree on a new contract (probably at a much higher price)
• developer may choose to do none of the above and decide to sell the unit to someone else.

Your Options

Rising market:

• seek the extension before the termination date be prepared to arrange temporary accommodation
• invest your purchase monies to keep pace with the rising market
• if you are funding your purchase from the sale of your current home don’t sell too soon so that you can keep pace with the rising market

Declining Market

• if the project is completed on time you will be obliged to pay the agreed price

Assignment of a Contract

• they may not be permissible
• there may be a substantial fee involved
• the above risks apply to the Assignment Purchaser
• the new buyer may not be able to recover any monies paid to the original buyer and the developer

What you think you saw may not be what you bought

• most pre-sale contracts allow the developer to make material substitutions
• they can also change the layout of the unit

Got a Vancouver Real Estate question? I’ll do my best to answer it. Call or send me an email. Larry