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You bought a PRESALE and Can't finance it! What to do?

Purchasing Pre-Sale Condo’s?


MUCH Due diligence is required when signing a PRESALE home. MUCH...


Why am I writing this post today?

Warning on buying PRESALE Homes and Condos

There are tons of advertising on " Buy this PRESALE", good deal and "PERKS" and low developer rate offers. These CAN pose massive issues when it comes to financing it later if there isn't proper planning done at the beginning.


I happen to be dealing with two very difficult closing on a presale from 2 years ago that has me putting new protocols in place and education for buyers and Realtors.


I can't help you AFTER you sign the contract and you assumed that you qualified, you may not. No one wins when you can't close your mortgage. The Realtor doesn't get their commission, the Developer will sue you and take all your deposit money, and you have no home.


HIGHLY RECOMMEND YOU ADHERE TO THESE WARNINGS:


  1. Can you qualify for the mortgage. Get the FULL approval done with a licensed mortgage broker or "what is your rate" could turn into "how do we close this?" The Bank guy at the Developers office from RBC or TD won't be there to pick up the pieces if shit goes sideways. Fine, get the "preapproval from them" THEN SEE ME.

  2. What happens if you can't qualify for a mortgage in two years? What's you Plan B? People's original plans change, often. A Broker always has a Plan B and will keep you too it. Your credit, your income, the potential issues at closing (ie: market crashes).

  3. Who is on the mortgage also must be on the purchase contract. Add any addendums to add other people upfront to prevent challenges and fees. Just look at what is happening now, 2 or 3 years ago rates where lower and housing was stronger. Now rates are HIGHER and housing on some has come down.

  4. Will the Developer allow assignments and addendums last minute if there are issues in getting the mortgage? Don't assume that "they all do" it's normal. If its not written down, they can make closing very difficult.

  5. What happens if your total price - price PLUS GST is MORE than the appraisal when it closes? Where will that money come from? You bought for 1.5 million and 2 years later its value is 1.4 million. You have to come up with $100k MORE. Lenders lend on VALUE, not purchase price. I would even go so far is to have an appraiser weigh in on the area. A property 6km away that sold for 1.5 million won't matter as appraisers usually have to stay within 3km and within 90 days of sold history in the area.

  6. Have a LAWYER review the contract. Don't just rely on the Realtor.


in 17 years of mortgages, this year I have seen many presales that are not doing well at closing and having to rescue them from Banks. It's stressful for everyone.


This is from our Lawyer from his website: This page outlines potential problems when purchasing a newly built home. Before signing a contract, we recommend that you review the contents of this page AND watch THIS Video at





Then talk with your REALTOR, LAWYER and MORTGAGE BROKER about how you can avoid these potential issues BEFORE YOU SIGN!!!

 

Developer

  • Who are they and how long have they been developing in the Lower Mainland?

  • Do they have the experience and depth to withstand a market slowdown so that your project is not affected?

  • How is their customer service? There will be deficiencies on closing, will they come back and fix them? 

  • Any online reviews/social feeds to follow? Google reviews?

  • Who are the directors and what is their experience?

 

Completion Dates

  • Completion dates are flexible and uncertain – extensions are common for developers.

  • Very short notice of completion date for the purchaser – usually less than two weeks.

  • The notice can be based on the developers’ estimate of readiness for occupancy. This can create further delays on closing. 

  • With extended completion dates, market value may change; no problem if increase but unit value may decrease, you are bound by the contract.

  • The purchasers must complete once the title is issued and the city confirms readiness for occupancy – this can be a verbal permission to occupy from the city, which can create a problem for funding.

  • Amenities may not be completed upon possession date.

  • Any interest rate guaranteed to the purchaser may not be extended by the lender – the purchaser may end up with a higher interest rate if the completion date gets extended.

  • The purchaser must pay an additional 5% more for GST to CRA.

 

Deposits

  • If the developer cannot complete it, the purchaser will receive their deposit as the sole remedy – this is likely to be without interest.

  • If the purchaser cannot complete, the purchaser will forfeit their deposit without prejudice to the developer’s other remedies. 

  • The interest paid on the deposit may accrue to the benefit of the developer, not the purchaser.

 

Pre-Completion Walk-Through

  • Walk-through time is set by the developer, usually within business hours (Monday-Friday, 9am-5pm).

  • There is no requirement for the developer to remedy deficiencies by the closing date, the purchaser must still complete the purchase.

  • The developer has a reasonable amount of time to remedy after the closing date, the purchaser must allow access to trades (again, usually during business hours).

  • Deficiency holdbacks are not permitted.

  • Deficiency disputes are settled by the developer’s architect.

  • Deficiencies in the building do not include low construction standards.

 

Parking Stalls & Storage Lockers

  • The location of both parking stalls & storage lockers is at the discretion of the developer.

  • Allocated parking stalls & storage lockers may not be adjacent & sizes may vary.

  • Parking stalls & storage lockers may be leased.

 

Construction 

  • Escalating construction costs may result in the developer refusing to continue the development unless they are paid more money.

  • There is no opportunity to view build quality.

  • The layout, area, and materials used are subject to variation at the discretion of the developer.

  • The area in the disclosure statement, marketing material and schedules to the Contract of Purchase and Sale are estimates only – the layout and area are determined by the final strata plan.

  • Usually, there is only a price adjustment if the difference between the draft and the final strata plan is greater than 5%.

  • The price adjustments, if any, are only for the strata lot and not the common property (e.g., the balcony).

 

Assignments 

  • Consent is always required for an assignment.

  • The developer usually has restrictions/prohibitions on assignments.

  • The developer usually has assignment fees.

  • The developer will require significant disclosure on assignments to comply with REDMA.

 

Paperwork

  • The contract of purchase sale is written by the developer’s lawyer on behalf of the developer.

  • The disclosure statement is long and often confusing.

  • Both documents above should be reviewed in detail, and if a buyer is confused they should get legal advice.

  • To keep costs down, review the paperwork in advance and flag the confusing sections. This will reduce the time spent by the lawyer, thereby reducing costs.



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