Pre-Construction Condo “Builder Forms” And What You Need To Know

A condo is cancelled, “relaunched” and resold at higher prices, delayed by five years, or remains in the dreaded occupancy period for an absurd 25 months.

A unit is smaller than what the buyer paid for, there’s no terrace as promised, there are two giant pillars in the living room that weren’t on the original floor plan, and on, and on, and on.

Let’s take a look at a few random builder forms and identify where, and how, developers ensure a dissatisfied buyer has absolutely nothing to complain about.

Then ask rhetorically, to buyers, “Why in the world would you sign this?”

Those documents you see me holding in the video are three random “builder forms” from notable pre-construction condominiums.

The clauses that appear are all just variations of one-another, having been drafted by brilliant legal minds, with hundreds of years of combined experience, who specialize in protecting the interests of condominium developers in Ontario.

And yet, into the sales centre walk Jane and Jim; wide-eyed, and fancy-free, ready to buy their future “home.”

What in the world makes Jane and Jim think they can “beat” the developer?

And what in the world makes somebody believe that this isn’t, in fact, a game, that pits the developer against the buyer?

Ignoring appreciation or depreciation, it truly is a zero-sum game.  A penny out of the buyers’ pockets, is a penny into the developers’.

After I wrote about the failed Museum FLTS two weeks ago, I received a couple of emails from frustrated buyers, who somehow made me into the bad guy for writing about the project to try and educate other buyers about the pitfalls of pre-construction condominium sales, and (gulp!) suggesting that buying pre-construction condo projects comes with risks they assume.

The blog post was lost on them.

The idea of accepting responsibility was too.

And last but not least, the idea of “wanting to know why the developer cancelled the project,” didn’t seem to come with an obvious, two-part answer:

1) Because he wants to.
2) Because he can.

Oh, and there’s a necessary third part to this:

3) Because buyers signed documents that allowed him to.

If you’re reading this, and you didn’t watch the video above, then stop reading – and click “Play.”

Those builder’s forms are ripe with clauses that allow the developer to win the “game,” every single time it’s played.

Nothing in that agreement is for the buyers’ benefits.

Everything in there is to protect, and promote the interests of, the developer.

So I ask again, “Why in the world would anybody sign that?”

If you watched the video to the end, and you saw the clause about the developers’ salespeople basically being able to say anything they want, with no repercussions, then why would anybody walk into a sales centre without an agent?

It’s like the lunatic serial killer that decides to act as his own lawyer in court.

Why in the world would anybody decide not to hire a lawyer to review the builders forms during the Provincially-mandated 10-day rescission period?  I would estimate that half of all pre-construction condo buyers think the 10-day rescission period, aka “cooling off period,” represents an opportunity to change their minds, or decide whether to go through with the purchase.  But it’s not!  It’s ten days to have a lawyer look over the builder’s forms, that were written by an army of lawyers that are in the very business of writing iron-clad builder’s forms!

Why in the world would anybody sign those documents that I detailed in the video?

As I mentioned in my Museum FLTS blog post, there are people who make money in pre-construction.

But in order to do so, you have to eliminate, or mitigate enough of the risk to balance the scales.

A friend of mine bought into a pre-construction project four years ago (obviously not through me).

He’s no slouch.  He’s well-educated, with a legal background, a business degree, and experience in real estate.

During the course of his 10-day rescission period, he had seven amendments drafted, submitted to the developer, and accepted, before he firmed up his deal.  In the months that followed, he had five more amendments accepted, through a developer that was trying to get toward the 80%-sold mark in order to obtain financing for the high-end, boutique’ish condo, and who also valued customer service among a buyer-demographic that would “spread the word.”

Twelve amendments.

My friend got everything he wanted, and more.  And his purchase, and investment, made sense.

Had he not been able to tip the scales in his favour, he would have walked away.

But what about the Average Joe in Toronto?

What about the person who walks into the sales centre, and buys through the floor agent?

I believe that built into every developer’s financial model, is the idea that in order to get to 80%-sold mark, you’ve got to sell a certain amount of units to people who “get it.”  These people will buy, but only among terms far more favourable that what is initially offers.

The rest of the buyers are the ones that pay the developers’ bills…

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  1. Saint Marge says:

    People just don’t read anymore. I’ll share my story on how I almost bought a pre-built – and got save by God. No, jut kidding – it was just a Facebook post.

    WARNING: long story!

    I’ve just turned 30 and one of my longest dream, since I got out of school, was to own my home. In Europe, owning your house represents a certain prestige and somehow a life achievement (for Canadians it seems getting married is the goal of every humans I’ve met); so I’ve been conditioned: work work work and save the dough – buy a place and stop throwing $1,600/mo to live in a shoe box with common washers and nocturne tiny visitors (imagine what).
    One day, maybe a couple months ago, while leaving Toronto to go for a conference, my business partner breaks the news while driving the Challenger: she’s buying a 2 bedroom condo, brand new, white and marble, huge balcony, washer dryer (owe), concierge, pool, parking and locker, in Parkdale. I mean, parkdale, I have to look on a map but hey it’s not that far, what, it’s called the Cove, waouuu sexy like in Nassau Bahamas? Maybe not ok, what’s the catch lady? $800K?! mazeltof I didn’t know you had this kind of money lying around – I mean 20% down it’s still a big piece of cash to cough, especially for underpaid glass ceiling victims saleswomen.
    Now this is where I was completely taken aback, seduced and weak like Brad Pitt himself was proposing. YOU DONT NEED TO PUT DOWN THE MONEY RIGHT AWAY ! I mean, I’m making money; it’s just been a rough climate and I changed jobs a few times but now I’m actually eating liquid and saving a fair amount each month. So what, it’s like $5K on signature, and then the remainder of the 20% downpayment over two to three years (sorry I can’t remember the schedule, but it looked good) AND you only need your mortgage in year 2.5 when you move in. Sounded pretty cool to me, like I could actually work hard (er- ie take a second job or marry rich like auntie) and save enough over these next two years to be a HOME OWNER – oh saint graal I was already picturing myself in my brand new place with three cats and Brad.
    She’s excited too, she signed on a whim without looking at the papers “because you have 10 days to rescind “ (alle-freaking-luia) and as soon we’re back, she’ll send them to her lawyer; but you see, she’s already convinced it’s a great deal, and how did she find out, I asked? Well, her 25 year old aesthetician told her she did it, and proceed to refer this agent that has amazing, VIP privileged units exclusively given to him by a reputed trustworthy experienced builder, here is his number, you’ll see he’s great, it’s my bestie now – free bikini. And despite my friend’s self confidence and experience as a marvelous safesperson, she felt the jealousy hit through her heart and went “why not me, I’m twice her age and working 10 times more, I want my white Marble japonese toilet parking locker condo surrounded by young and dynamic demographics too!”..
    So she went, she met the agent, she went to that place where they showcase the building made all tiny and cute – even have the lights and the fake grass, and oh sign here bye”.
    I mean, I wanted in. I was convinced that was the deal of the year, better than the private sales at Canon Blanc.
    So she tells me, guess what, the agent told me he had an another ex-clu-sive privileged super deal for that new condo – Canary District – and she wants to go see it so bad because she’s not sure Nassau – sorry Parkdale – is still the best deal, so it’s worth seeing. And I’m like, sure lady, Saturday let’s go check it out; frankly I’m intrigued by all that noise.
    So we get there. And it is a MAD HOUSE. There is at least 50 people running around agitating papers “it’s the LAST ONE”, free coffee (I like free stuff), sandwiches, it’s beautiful, clean, spacious yet crowded – OMG half the money is already gone building the temporary sale office?!
    We wait, and I look at the brochure, the marble kitchen and damned nice washer dryer in the show room, and slowly but surely the pressure rise; they’re so many people signing, this HAS to be a good deal- what you mean “phase one”, what I get a $20,000 discount if I buy now because tomorrow it’s phase B and it’s going up so WHAT I’m ALREADY MAKING A PROFIT omg omg omg what it’s the LAST TWO BEDROOM LEFT OK I SIGN WHERE???
    Yep. Just like that, I signed, gave my personal info, and as I didn’t have my check book the agent so kindly left his check ($5,000) to reserve the condo just for me, lucky, lucky me! Yes he’ll come get my check in the afternoon, he’s not a bank after all. Look I got a pretty bad AND a USB KEY for free, OMG so much luxury.
    So we leave, and I feel pretty confident this is the beginning of victorious bragging over the phone to my family – I’m BUYING A PLACE- and still, I have 10 days to look at the fine print, but I’m savoring my victory – I got the LAST two bedroom, and that man really wanted it, but she gave to ME.
    Stupid much, hey?
    Now, I’m not particularly smart, but I’m defintelt not stupid. And my mom told me, nothing is free in life, and you better expect getting f*****, so don’t be dumb, read the fine prints.
    I think that’s where most people fail. Especially in this country, trust is given really quickly, and Canadians are fundamentally nice people (which is why I love loving here so much), so naturally you would expect the agent working for you and your best interests, right?
    Wrong.
    I mean, he never really asked, how much I make, if I’m stable financially; I’m glad he doesn’t ask though. But I know nothing, at this stage, how anything related to buying a condo, mortgage, market prices, anything at all. I took his words for granted : $511,000 for a two bedroom with no balcony of 590 sqf, parking 60K and locker 5K extra, it’s worth it – because it’s the distillery district and it’s up and coming, because there is limited space, and because the whole city wants to move in. Right? So what, 2.5 years to put down $115, geez Louise I can do it (the first cheque alone was probably going to put me bankrupt, but prostitution is still a solution ), and at least I own, and let’s not worry about the mortgage now, oh by the way there is an extra cost per month here – it’s only $60 don’t worry it’s for Internet (like what I HAVE no choice about having internet?) and here yep don’t worry that just an extra 7K that they could take you at the end if the city bills them for paint and stuff. Like WHAT the builder hasn’t already put that in the price? Oh it’s common? Ok then.

    Now the funny part, is that the agent was really quick to 1. Come pick up my cheque 2. Come have me sign the papers after the builder signed (basically my 10 days run from there) but once that done, I never saw him again. Not that I needed to, but you know, it’s my first home buying, I’m alone, I’m a little freaked out, man you want to close that sale?
    I asked, when is the actual last day to rescind? Oh I’ll get back to you on that. And herrrrm, like if I have questions can I meet the builder? Hahaha you’re so cute no you don’t meet the builder, he’s a very important man. Ah ok… can I ask you the questions ? Sure text me. Ok gotta go (“rip some more people off”)!

    Well, I guess that was easy! I take my large package slipped into the very fancy bag they gave me, and I go up.

    I text the agent about the last rescind day, then we talk, and he says he will ask. I’m a little worried because I’m travelling a lot and some days are holidays. Also, if I’m going to buy, I can’t really afford a lawyer right away.

    That’s how they get you.

    So, maybe three days later (because it seemed to be such a good deal!) I started reading the sales and purchase agreement, and proceeded to go through each documents attached to it.

    I spent maybe 6 hours going through all of it over two evenings – english is my second language. And HOLY SHOT, did I take notes. Halfway though I had the last phone call with the agent. Sure he says, send me your questions and I’ll pass them to the builder. Sure I can ask to change that, but honey these contracts are templates you know, everybody sign them as they are. And I’m like, if everybody sign them, does that mean I’m stupid because I’m starting to reads things that seem insane to me?? Oh no honey don’t worry. What, the last rescind date? Yeah I’ll text it to you I forgot, bye gotta go (“rip some more people off”).

    Meanwhile, you see, I was getting informed on the whole pre-building thingy. And then my disbelief started growing immensely. In my contracts, beside the things that made no sense where stuff like “and the builder can retain ownerships of 30% of the units” (what, I’m paying for these units and then you’re gonna make money renting them??) “the building retains ownership of 40 parking spots and 40 lockers but ca force the condominium buying them from him at all time with a 11% interest rate “ (note the parking spot was then 50K and not 60K as offered by the agent), and yes all the crap about size, finitions etc. I mean I probably had a couple pages of things I REALLY didn’t like, beside the ones I didn’t even understood. Oh and it was 12K of maybe going over fees, not 7K, thanks agent.

    So I send these to my agent, thinking he’s going to make the best for me, because after all I’m special, I’m making him money, right, RIGHT?

    Nada. Zielch. Rien. Nothing! Not an answer, an acknowledgment that he received my email. And baby, time flies! I’m getting stressed, it doesn’t seem a good deal anymore, and thanks to blogs like this one, it seems someone is putting it deep in me without my consent.

    Another thing I repeatedly asked for, was a benchmark of the similar condos that sold in the area. I’ve seen that before so I knew MLS gave that information to realtors. Still there, zero answer.

    So there someone up there had pity on me, or I must have done a good deed in my past life. A friend tagged me on a Facebook post “10 listings of 2 bedrooms downtown for less than 500,000”. I look, I called, and I visited two places right away, just to see. HOOOOLY crap.

    Not only it turned out the market was one of its -rare- bear phase, so I saw some real deals out there, but the new agent – gorgeous lady – sent me, on my innocent request, hat benchmark I asked relentlessly to the builder agent about selling price in distillery.

    I feel on my bottom. I mean, it’s not that it was huge – but still a good 100K here and there; but also these are already BUILT (and brand new), so why am I paying such a big premium for something that will be at least built three years from now, betting that the market will go up that much, that means I get my condo today at tomorrow’s price with today’s money? That made no sense, you see. No one can predict the market, but there are a lot of signs that it might not take 100K in three years – that’s a lot. Also, I’m goddam financing the builder with zero interest!! Does the bank do that? Nope, so why am I? And plus I had to comply to their ridiculous demands and take the risk for them to tank or not deliver ??

    That was it. Still not having heard from the agent, I took my car, I went to the showroom (I printed my OWN rescind letter just in case) and I asked to retrieve my cheque and all information. I was so pumped up, but it was fairly easy. She asked me why I cancelled and I said, did you read the contract? Oh god, the way she looked at me…”no, why?” I mean, that was like Carry when she opens her eyes after getting the bucket of blood on her face. She was clueless, and I wasn’t going to explain myself. So, that was it.

    I read somewhere that pre built a few years ago were a really good deal, but that now builders felt that the continuously growing demand allow them to fix the rules. It’s too bad, but I 100% agree with the author here : do your due diligence and read the freaking paper. In that case, I really didn’t need a lawyer to know I was entering a one way good deal (and not my way).
    Also, inform yourself; use google and call your friends. One of them saved my ass.

    One funny thing: an hour after I cancelled the agreement, the agent called. I didn’t pick up.

    Truly yours,

    StM

  2. Condodweller says:

    David, another great article. You should post a link to this video on the landing page of your site in gigantic font in flashing reverse video! That would really provide a great public service to the potential buyers you are trying to warn.

    Also, if you want to provide an even better public service, create a follow-up with the counter clauses that a savvy buyer can use for example what clauses your friend managed to extract out of the builder. I can imagine they are all surrounding the issues you listed, however, it would be useful to all to know what has worked in the past for others.

    150% of the downpayment returned as posted by Ralph is a great example. My contribution is regarding the size of the unit. My lawyer got an amendment accepted by my developer to compensate me for each sqft less in the actual unit. He told me that the builder could have given me a broom closet and I would have had no legal recourse. We also received permission to lease the unit during the occupancy period.

    The reason for having a good list of items for amendment would be useful for everyone, including those who do hire a lawyer. Let’s face it, even lawyers are human (I’m sure there is a lawyer joke in there somewhere) and they may not think of everything or do something about it. My lawyer was great and he went through the entire document with me however even he did not offer to submit any amendments on my first purchase. On the second one we did the amendment for the size and lease but decided to take a chance on the others. I would definitely try to amend the occupancy clause to include compensation over and above a few months.

  3. Izzy Bedibida says:

    Interesting that your friend got all of that. How did he go about it? When I causally suggested changes to the sales person, I was escorted out of the sales office for even suggesting them. It was something that “was not done”. I have never gotten to the point of having a lawyer review a purchase agreement, would have been interesting to see how it would go.
    I have been escorted out of the sales office on other occasions because I knew how to read floor plans, and asked “too many” pointed questions that the sales person did not want to answer, as it would have been a lost sale.

    1. Condodweller says:

      LOL, being walked out a sales office is a good sign you are on the right track! Keep it up. If you are walked out for asking questions that’s the one red flag you need to stay far away.

      1. Izzy Bedibida says:

        You should have seen the look one one of the sales rep’s faces when I walked in with a tape measure, and a list of furniture dimensions.

    2. Jennifer says:

      My guess was that it was a high-end condo at a high purchase price and/or with not many buyers lining up to buy. If it is a condo with a lot of frenzy, why would they sell you to with clauses in your favour when they can sell to someone else on their completely unfavourable terms. My guess is it comes down to how desperate they are to sell and at what price.

      1. Condodweller says:

        This is where educating the population en large needs to happen. When everyone starts demanding changes developers would need to change their ways otherwise they wouldn’t make a sale. As long as they can kick out the “odd” person for asking questions and move onto the next one they feel secure. Unfortunately, as long as there is high demand they will find those who are willing to sign without having a lawyer review the contract. It’s the same as with offers on houses with no conditions. Once demand dies down all of a sudden conditions will return to protect the buyer.

    3. Ralph Cramdown says:

      If you’re asking about changes before signing the contract, you’re just a troublesome tire kicker in the agent’s mind.

      Sign the deal with no changes. Now the agent will immediately move on to phase 2 — thinking about how she’s going to spend the fat commission that she’s just earned, plus heartening the developer with news of a sale. When you return during the rescission period with a pile of changes, she’ll feel that commission which she’s already mentally been spending start to slip away, and she’ll definitely be in your corner to try to save the deal (not that the agent gets much say in what the developer will and won’t do, I’d say, but…)

      Psychology.

      N.B. This only works on condos — there’s no rescission period for new houses.

  4. Rachelle says:

    In my opinion, developers had had their way for far too long and continue to take terrible advantage of consumers. What’s even worse is they are now continuing to manage and control the buildings after closing by installing their own managers and their own “investors unit” managers. Basically the owners are going to have extreme difficulty voting these job for life condo managers out because they control the investor proxies.

    1. Izzy Bedibida says:

      Great points. I wish that there was some way to control that type of behavior. The strange thing is that now I find a domestic car dealership honest and upfront in comparison.

    2. Condodweller says:

      Very interesting. I have heard of vendor take back mortgages at high interest that’s a PITA for future onwers but this is the first time I hear about this. Lot’s of ideas are flashing through my head but would you mind elaborating on what you have seen to educate us. Is this a new norm? TIA

  5. o says:

    Hey…enjoying the video, very informative…but just a minor suggest..maybe look into getting some kind of clip on microphone…hard to hear you with all the room noise / echo.

    1. Ralph Cramdown says:

      Yeah, a cheap Lavalier mic is called for. Sorry to pile on, but if you want to film in CinemaScope, know that it’s a difficult format to master, given the generally vertical form of humans and the WAY horizontal format of ‘Scope. Kathryn Bigelow is super at it, IMHO, but then I think ‘Strange Days’ is underrated…

    2. Condodweller says:

      Also, it looks like a tripod was used however the operator bumped it during the first part. David should take his own advice and not use a phone camera for important photos/videos. I think a take two might be in order for such an important video.

  6. Andrew says:

    This is awesome!

    The yellow highlighted portion of the agreement makes this feel like I’m watching a 60 Minutes exposee.

  7. Ralph Cramdown says:

    I read an interesting story about a group of about two dozen investors in a cancelled Vancouver development who were suing. Sorry, no link. Interesting #1 was that it was inferred (though not proven) that they were all offshore investors from China. Interesting #2, however, was that the developer refunded their deposits PLUS 50% as specified in their contracts, and claimed that that was the limit of his obligations. Obviously better negotiators than the retail chumps in our newspapers who’ve been refunded their deposits plus nominal interest and now claim to be priced out.

    Broadly speaking, there are two kinds of people in this world. Those who when told to “sign here” dutifully scribble, and those who take it as the start of a negotiation.

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