March 24, 2012
Beauty Of Pre-Sales – Speculation Or Investment?
Many made a lot of money by ‘flipping’ pre-sale contracts in the past, but the rules and risks are much different now
In the fast rising real estate markets between 2004 and 2008 (and in some areas longer) brave speculators made more money assigning (flipping) a pre-sale contract than the developer earned creating the building.
It was easy: Put a down payment on a suite to be built – or, if you had a lot of guts, buy two or more. By the time the building was finished, soaring real estate prices helped you double and triple your down payment. If you decided to assign the contract you made the cash … never even having moved in. That went fine for years.
But in 2008, worldwide financial markets tanked and with it condo markets in Vancouver. By December 2008, some 200 presale unit owners were offering their contracts on Craigslist – often at a loss. (On March 20, 2012 there were just 39). When that did not work, many simply did not complete the deal and lost their deposit. Some lost not only their deposit, but where the price of the unit had fallen they were sued by the developer for the difference (developers won in many cases).
Needless to say, developers once burned have now tightened up the contracts. Buyers must realize that developers get their financing on the basis of pre-sales and rightfully expect and deserve all pre-sales in their development to complete.
So, the pre-sale game changed. But probably for the better.
If you are a genuine buyer wanting a new home, there are a dozen reasons why you should still consider a pre-sale. You buy today, you have one to two years to complete. That gives you time to sell your house and you can pick colours and finishings. And if the market rises during construction, you benefit from that price increase, too.
But there are some things to watch out for:
- Buy the builder/developer’s reputation. Ask for references from buyers in previous projects. What is your builder’s rating for after-sales service? How solid is the developer? What recourse do you have if the developer does not complete? Call the Better Business Bureau.
- Get on the pre-sellers’ list – the high quality pre-sale experts like Rennie Realty Marketing Systems, Mac Realty Marketing Solutions, etc. Get invited to pre-sale launches. Learn the latest prices, features … or at least get free shrimp at the opening.
Ask these questions:
- What amenities are offered? What warranties? Who guarantees the quality of things like materials, flooring?
What will the monthly maintenance/common area fees be? Will this amount change after the last unit is sold? How much are taxes?
- What is included? Do I own my parking spot or is it leased?
Is the balcony square footage included in my apartment measurements? Where is the suite located? Will the suite be beside an outdoor vent? Exhaust! Over an entrance? Noise! Over a garage? Ditto!
- Note that many developers no longer let you assign the pre-sale before closing. Some may charge an assignment fee that is refundable if the assignment does not close. Examine the conditions. Have your lawyer read over any pre-sale agreement.
- Has the developer filed a rental disclosure statement? What are the terms? How many years can you rent it?
- Take a picture of the show suite. Take a picture of all counters, sinks, baseboard and flooring used in the show suite.
- Assignments: Use Craigslist.com, Kijiji.ca to search for any ‘resale-pre-sales’. Again, have your lawyer read over the assignment. If you buy an assignment, never pay any profits to an assignor until the day after you close with the developer. Register yourself with the developer as having accepted the assignment.
Special to The Sun
Ozzie Jurock is the Publisher of Jurock’s Real Estate Insider, and can be reached at www.jurock.com