The guy in the photo below is a lawyer, and he has an amazing moustache to boot! He looks like something out of The Addams Family, but I digress…
I have decided that I can no longer sell pre-construction condominiums, among many other reasons, because I am not a lawyer.
The developer has a legal team who is representing millions and possibly billions of dollars worth of business, so how the heck can I possibly combat that as a lowly Realtor?
On my grade eight class trip to Ottawa, we paid a visit the Supreme Court of Canada and acted out a “mock trial.”
My classmates and my teacher all knew that my father was a criminal lawyer and that I aspired to be one, so I barely had to raise any fuss to find my rightful place behind defense council’s solid oak desk.
My classmate, Irene, had been mock-accused of stealing a bicycle from her friend, and the mock crown attourney insisted that Irene had told her boyfriend she’d stolen it out of spite. This was the basis of our mock-case.
That’s when, at thirteen years old, I stood up and yelled “Objection! My client is a lesbian!”
The mock-gallery roared, and I went on to argue that my client preferred the company of women, and any “boyfriend” testifying that she had stolen this bicycle was clearly a fraud.
That was the height of my legal career.
I was thirteen years old, and arguing a mock-trial at the Supreme Court of Canada.
I haven’t been called to the bar, yet…
I am not a lawyer.
I will never be a lawyer.
As such, I don’t feel that I can effectively represent buyers in the purchase of pre-construction condominiums in 2010’s Toronto because I think they need a lawyer to walk them through the ENTIRE process from start to finish.
Buyers get a ten day “rescission period” for their lawyer to examine the documents and give them a thumbs-up or thumbs-down, but I fear by that point, it’s too late. The buyer is already excited about his or her purchase, and although rescission rates can reach as high as 40% with some projects, most of those are people that had tied up units to make up their mind about the project; not first-time buyers who purchase with emotion and are most susceptible to builder’s schemes.
When you go to a sales centre and look next door at an empty parking lot that will one day, perhaps, become a high-rise condominium, I think you need to be VERY weary about the risks.
As I said above – the developer has a legal team that could rival any John Smith, LLB that you or I could muster up. Unless you’re going to fork out the big bucks to retain Audrey Loeb (who I highly recommend!), then how can you possibly have a chance?
If a developer, be it the big boys like Tridel and Monarch, or the small, petty crooks as I’ve described on my blog before, has a couple hundred million dollars at stake with a condominium project, don’t you think they’ve spent the necessary money to have a better, smarter, more creative and more devious team of lawyers than you or I could ever put together?
Here’s a cliche, yet accurate depiction…
There’s a girl named…..Tamara.
Tamara graduated with a Bachelor of Arts from the University of Western Ontario in 2008 where she lived with her sorority sisters.
After finishing school, Tamara immediately packed up and went to travel Europe for six months, taking in all the sights that any 22-year-old simply must see before entering the real world.
When she got back to Toronto, Tamara’s parents floated her enough money to room with a friend in a downtown Toronto condo, and she began her “life as an adult.”
Tamara began work at an entry-level job for XYZ Corp, processing claims and learning that you can waste more time at work if you’re a smoker and you take the corresponding breaks.
After about six months, Tamara realized this just wasn’t the job for her.
In addition to “So You Think You Can Cook” and other awe-inspiring shows like “Wife Swap,” Tamara also watched just about every show on real estate that HGTV had to offer.
She absolutely loved the life that the show portrayed! She could totally picture herself driving around in her luxury car, talking on the phone, and drinking Starbucks! She would absolutely love to spend her days looking at pretty houses and her nights attending special “Broker Preview” parties for new condo developments.
She decided that this was the career for her.
She wanted to be a real estate agent!
Tamara promptly quit her job at XYZ Corp and spent nine months “studying” for her Phase 1, 2, and 3 real estate exams, and in early 2010, she was licensed as a Real Estate Sales Representative.
Tamara did two deals in her first four months as a Realtor – she sold a $218,000 bachelor condo on Fleet Street, and she sold a $2,250,000 house in Forest Hill to friends of her parents, and she simply pushed some paper around to make a cool $56K.
Last week, Tamara’s friend Brittany asked her if she could come with her to the sales centre for the new Hope Lofts down on Blaven Street.
Tamara accompanied Brittany, and they spent a good hour marveling at the kitchen backsplash in the model suite and talked at great length about what kind of couch she should get from EQ3 to match the small dining set that she had just seen in the window of Grange not an hour earlier.
They loved what they saw – stainless steel appliances, granite counters, hardwood floors, and tons of floor-to-ceiling windows!
The girl working at the sales centre was so nice and friendly, and both Brittany and Tamara were dying to know where she got her eyebrows done!
The development was scheduled for completion in “early 2012,” and both Brittany and Tamara were sold on it.
Brittany signed the papers; Tamara acted as her agent, and the rest was history.
This happens every day in my business.
There is no way in hell that “Tamara” should be helping anybody purchase a pre-construction condominium.
She isn’t qualified, and has no knowledge or experience.
I’ve been in this business for seven years and I know that “the developer wins every time.”
I know the ins and outs of the condominium construction industry, and I know enough to warn my clients to stay away from it.
I’m not a lawyer, and I’m not qualified to represent a buyer in such a complex transaction.
So how the hell is a 24-year-old Realtor with six months experience qualified to help her friends buy condos from developers that put thirty-page Agreements in front of naive buyers?
But you know what? All of this is a moot point.
There’s no money to be made in pre-construction at today’s prices.
If you buy at $550/sqft, once you factor in your Land Transfer Tax, legal fees, condo levies, and the carrying costs associated with the occupancy phase, you’ll need the value of the condo to go up to $575/sqft just to break even when you pay a Realtor to sell the property for you anywhere from 3-5 years down the road.
Some might call it a Ponzi Scheme.
I just think there was money to be made when pre-construction prices were 25% lower than that of comparable resale.
I can’t talk about this anymore.
People either listen, or they don’t.
And with every new development that is “60% sold” by the end of opening weekend, it pains me to think about the collective headaches that all these naive, uninformed buyers are going to endure…Back To Top Back To Comments
at 8:58 am
Dave — will your lawyer allow you to show before & after photos of your west side lofts condo? (finishing touches you paid for after taking possession) and can you tell us if the builder has resolved any of the PDI deficiencies?
at 9:05 am
It’s not just that Brittney needs to sell the condo at $575 / sf to break even, but the person who pays $575 / sf is actually paying $600 /sf after their land trasfer taxes are included – and that is the real problem with this market –
transaction costs are too high, which means that the next person needs to pay 25% more for the vendor to get out whole. I guess not every buyer is an investor.
at 9:45 am
I am a Realtor having worked in the business for just shy of three years. I choose to remain anonymous because unlike some people I don’t feel the need to sing it on the mountains every time I have an idea or a thought.
I’m sick and tired of coming on to this blog every day and reading nothing but negativity. This website does nothing but spew out the jaded opinions of a pessimistic, negative person with an obvious axe to grind.
There are so many other, better real estate websites out there that are written from a positive perspective and actually help consumers with their real estate purchases.
This website is nothing more than yelling FIRE in a crowded theatre.
I’m tired of the negativity, fear mongoring, and scare tactics.
at 10:25 am
so you come on this website because …. why? cause he’s an entertaining writer! who has had a lot of positive things to say, but sometimes, well, there IS no positive. When the truth is ugly, why would you want to hear it any other way? If you NEED to hear things with a positive spin, to hear about what is good and wholesome in this world, go to a disney site. the rest of us prefer to hear and learn about the reality before we lose our shirts.
at 10:36 am
@ Anonymous Realtor
First and foremost, just because you beat me to the punch in pointing out your anonymity does not make it okay. We are in a service industry where our name is our brand and our value. If you were worth your salt as a Realtor, you would put your name on what you just wrote.
Secondly, I’m flattered that although you don’t like what I write, you still come on “‘every day” to read it. That’s kind of the point, in case you haven’t figured it out yet.
I find your argument to be laughable at best.
If you want “positivity,” then go read a self-help book.
If you want “positivity,” there are no shortage of real estate websites and blogs that will do nothing but sell happy thoughts and paint rosy pictures.
But those sites are boring, uninteresting, and unhelpful.
“This building is great!”
“This neighbourhood is amazing!”
“It’s a great time to buy!”
“It’s a great time to sell!”
“It’s a great time to buy AND sell!”
Most of my colleagues are too afraid of losing potential business to actually take a stance or put forth an opinion. I realized a long time ago that I can’t do all 160,000 real estate transactions in the city of Toronto each year, therefore I will be honest, forthcoming, and hold nothing back on my blog and let the consumer make up their minds as to whether they want to use my services.
Positivity is not necessarily a good thing.
Can you think of another time, in another market, where all the salespeople were being overly-positive? I can. How about 1999-2000 in the stock market?
You had 26-year-old stock brokers with no experience selling shares in companies with P/E ratios of 400.
You had experienced, “knowledgeable” 62-year-old traders recommending stocks with burnout rates of only a few months.
Everybody was so POSITIVE!
Everybody was so HAPPY!
Nobody did any research, relied on fundamental analysis, or put any logical, rational thought into what they were doing.
And look how things turned out?
With three years in the business, maybe you’re too young to know what I’m taking about. Maybe you think the burnout rate refers to how long it takes for you to get stoned each night in your mom’s basement before going back to your “job” which consists of unlocking the door to condos for the clients you’ve been handed, and then pointing out the obvious: “Great cupboard space, beautiful granite counters; love the view!”
If you have no opinion in this business, then you have no value.
I know what type of agent you are. You’re the agent I always cross paths with that does nothing but point out the positives of a property. That’s not our job. That’s easy. Any buyer can see that because they buy with emotion. Our job is to point out the negatives – the pitfalls, red flags, and potential disasters.
What I’ve done on this blog in the past week will help so many consumers to better understand the contracts they are signing when purchasing pre-construction.
Yes, I’m opinionated, and yes, my opinion on pre-construction is negative. But unlike yourself – your anonymous self, I’ve taken a stance on an issue, done twenty hours of work for free and on spec, and put it out there for others to use as they see fit.
Where is YOUR value?
If you value yourself as a Realtor, and if you want people to believe that you’re not just “one of 30,000” who works from deal to deal, you’ll come back on this blog before the business day is over, and you’ll let us all know who you are and where you work.
at 11:50 am
I’ve read this blog for over a year now but this is my first post.
Contrary to what Anonymous Realtor thinks, this blog is exactly what prospective home buyers need. Anyone that doesn’t bother to educate themselves about the reality of buying real estate is doing themselves a huge disservice. I’m a research scientist by training and make it a rule to question and learn about every decision I make that has such huge consequences.
My wife and I were first-time home buyers last summer. We were getting married in the fall and needed a place to live as my 385 sqft bachelor apartment downtown just wasn’t going to cut it. We ended up buying a brand new unit in a brand new building, but it wasn’t really pre-construction. The building was almost done and had been 95% occupied for almost a year. It was a perfect location for us, an ideal size, and totally fit our aesthetic sensibilities.
Even though we didn’t need to deal with the kinds of delays associated with buying pre-construction (interim closing was 60 days after we picked out all of the finishes for our unit), all the other pitfalls David has described on his blog were fair game. Thanks to reading various posts here, as well as the helpful and honest nature of our own real estate agent, we were able to remove and cap some of the more dangerous clauses in our contract. Furthermore, we knew what to expect when dealing with the builder and did everything we could to prepare and protect ourselves.
While David has indeed been negative about his opinions on buying pre-construction, he explains and justifies his opinions. He is not just yelling fire in a crowded theatre. He actually sees that the crowded theatre is on fire and is doing his level best to ensure that people don’t end up getting burned. Not only that, but he also manages to do so in an entertaining way.
This is neither fear-mongering nor scare tactics. Instead of running away from buying new, my wife and I used this information to buy new AND not get ripped off in the process.
So, I would like to say thanks to David. Thanks for both the honest information and a few laughs along the way. Keep it up!
at 11:56 am
pre-construction is no longer worth it. The prices are far too high. The only benefit to pre-construction back in the “good ole days” was it was significantly cheaper than resale. Those days are long gone. Would you buy a Honda Civic sight unseen for more than what you would pay by walking into a dealership and test driving one? Keep in mind….the civic you purchase could be ready in 2….3…4 years. No, you wouldn’t…so why do we do this with real estate? What is the benefit of pre-construction? Not only do you pay an arm and a leg….but depending on the builder you will get a subpar unit and you’ll have to deal with it…all the while watching the value of your property drop.
This is a great blog for people who live in reality. Notice the only people who give this blog hell are….agents and builders? What a shock.
Really wish builders were held accountable…they’re free to do whatever they want.
at 12:19 pm
I cannot say anymore than what has already been said in regards to Anonymous Realtor’s post.
This Blog is an excellent in-depth analysis to the many aspects of purchasing realestate. The one reason I continue to read David’s blogs daily, aside from the humour he injects into them, is for the sole reason you are lambasting him – for his position on his opinion regardless if its positive and/or negative. He gives an honest account of his opinions.
And I believe the ability to stand back and view something objectively, this is the insight one needs to make an informed opinion – as an investor or a home buyer.
at 1:06 pm
I totally agree with Anonymous, how dare you tell everyone that buying or selling a condo, can be anything less than the most beautiful and fulfilling experience one can have? Because of you, people may pause and think before making one of the largest purchases of their life, and that hesitation may convince them to miss out on all the joy and perfection that comes from buying or selling a condo. Shame on you David, shame!
at 1:31 pm
I’d like to thank anonymous for commenting.
Why? Because it made David post another blog post length comment in his defence.
And I just can’t get enough of this blog.. Ha!
at 2:24 pm
@ Anon – re:
“There are so many other, better real estate websites out there that are written from a positive perspective and actually help consumers with their real estate purchases.”
Please provide links to these websites. If not, then we’ll know you’re definitely full of .
at 3:20 pm
Maybe I’m just a newbie but what is a burnout rate?
at 4:26 pm
It would be nice if everything was positive and we could all live in gumdrop houses on lollipop lane, but unfortunately this isn’t the case. Which is why I love David’s “negativity”.
As a completely uneducated first time buyer, David took me to a handful of showings and declared many condos which seemed perfectly acceptable to me as, to put it mildly, crap. As someone who could have been sold on almost anything David’s honesty, which some anonymous realtors seem to call pessimism or fear mongering, was perfect.
It’s why I was fully confident when we found a place we both liked that I was making a good decision (which as it turns out, it was) and why David will always be my real estate agent as long as he’s in the business.
Keep up the great work Dave.
at 10:14 am
You just have to laugh at people like “anonymous.”
They are attention-seekers, for sure, but are also trying to mooch off David’s blog for their own self-interested purposes. Perhaps one of these “other” blogs is written by anonymous himself? I don’t want my realtor (or realty blog) to be fakely-postive and pretend-optimistic. It shouldn’t tell me what I hope to hear. I want the “real goods” about real estate today, and if that includes witty and comical observations about related (or other) topics and issues, then bring it on. Anyone (and everyone) can write a “how to” and “what to do” blog. David’s blog is different. I laugh AND learn.
at 10:16 am
Interesting series of posts this week David. I’ve been weary of buying pre-construction for some time now because of all the issues that you pointed out.
I also think that pre-construction prices are much higher than what they should be. Maybe, just maybe it’s because rich investors from Asia keep buying blindly into ANY project.
A Realtor once bragged to me about how he can sell 20-30 pre-construction condos in any project to his large pool of wealthy investors in Iran (with some individual investors purchasing as much as 10 units in building).
It’s a simple formula. If speculators continue to freely buy up pre-construction inventory at ridiculous prices, the developers will continue to sell at those prices.
Alabang Office Space
at 1:55 am
Hi David, It’s the first time that I came across your blog. I just can’t help but read on. Unlike some other real estate blogs that, despite giving out positivity like the ones you just responded to Anonymous, is not helpful at all. I like how you stand up for those consumers who are, as what you have said, and I quote, “Any buyer can see that because they buy with emotion.”. That’s true. Some are blinded with the positivity and fall for those agents that after you sign the contract, will leave you alone with the property that you thought was perfect. You said, “Our job is to point out the negatives – the pitfalls, red flags, and potential disasters.”. That is true! Keep it up! Just remember though that a little positivity would not hurt as well.
at 12:40 pm
Anonymous Realtor is a troll.
David’s “negativity” is just pointing out the reality of the situation! Even Moneyville/YourHome isn’t all rainbows and lollipops.
at 8:17 pm
The “burnout rate” refers to how many months’ worth of cash a company has before they go broke.
During the tech-boom, there were dot-com companies who really only had an “idea” and little else, yet they were brought public by investment banks and their IPO’s brought in tens or hundreds of millions of dollars.
Many of these companies just burned through their cash, month after month, and never made any revenues – let alone profits.
The “burnout rate,” would indicate how much longer a company could survive on its cash reserves before they could no longer continue to pay their expenses, and essentially continue operations.
Unfortunately, I think that the “burnout rate” is a hindsight ideaology, as I’ve seen it in dozens of finance books written about the tech boom, but I never heard this term used when I was immersed in the tech craze in 1999-2000.
at 1:12 am
I purchased into the Westside Lofts back in 2007 – before the big change to the entire building. I was 23 years old at the time, took my parents with me, and a fabulous Realtor who gave me as much information as she could. My Realtor was able to cap my closing costs for me, get me a free upgrade, and advised me on if I should take a designer kitchen, hardwood floors, and $5000 cash back – what would be best in terms of investment. Then she told me to take the contract to my lawyer (because she is NOT a lawyer), and have him go over EVERYTHING! My parents also (having bought pre-construction on multiple occasions), were able to advise me on what they themselves learned from making these types of purchases – and ALSO told me to go to a lawyer!
So, I went to my lawyer, and he informed me of EVERYTHING – up to the fact that the project could change at any time or even be canceled.
I am going through the EXACT same ordeal that you are currently with the Westside project – I originally purchased the 720 sq.ft. model, and am now stuck with 610 sq. ft after the changes.
I hate that you are telling people that buying pre-construction is a bad idea. I paid less than $350 a square foot for my condo plus $19000 for parking. Yes, I have had to buy hardwood flooring, and extend my walls, and do some electrical work. But the assignment below me (same floor plan) is currently on the market for $309,999 – with no work done to it. You don’t have to be a genius to realize that even AFTER my added investment of $3,000 to fix it up (my family is in construction, so they are doing the work for free – thankfully), AFTER paying a Realtor commission for selling it, and AFTER all the time waiting to get my hands on the place – I would still be making $72,000! And that’s IF I only list at $309,999!
If I bought a resale condo at 610 sq. ft., I would have to hand out at least $335,000 (at $550/sq.ft.), and chances are I would have to put in cash to fix it to my liking anyways – because it would be older! Not to mention the outrageous maintenance fees. At least for the next year or two I can get away with paying .37 sq. ft until they increase.
In case you didn’t get my point – I paid (WITH PARKING) $232,000 for a brand new condo – and have already made close to A HUNDRED GRAND in equity. I also know about 12 people who have done the same! And YOU did too! So please, instead of telling people not to buy pre-construction, just do YOUR JOB, (since you now have an abundance of first hand knowledge) and just inform them of all the potential risks and pleasures of buying pre-construction – $$$ – because you could be swaying someone away from making the best real estate investment of their life!
at 12:42 am
But you said yourself you bought back in ’07… Alot can change in three years time… If pre-construction does cost 550/sqft like David was saying it does now.. That would mean that your 610 sq ft condo would be 335k +tax +cash to fix up… Etc etc.
I’m sure if these were the numbers you had back in 07 when you bought your condo, you wouldn’t have bought it. Like you said – it’s listed at 309,900 right now… So why pay 335k+ for it? So you can break even down the road? Isn’t that a waste of time?
I think that’s the point David was trying to make. That at these prices, it makes more sense to just avoid the hassle and the wait time and buy resale.
You can always sell in 3-5yrs, or however long it may have taken to complete the pre-construction project, and move into a newer building also.. If new is the appeal of pre-construction.
at 12:30 pm
@Jackie – not everyone has family willing to do the work for free or almost free, and prices aren’t the same they were back then. Lots of people made money “back then” but we’re not addressing the people who want to buy in pre-construction, don’t mind losing 90 square feet from what was agreed on, AND have a time machine to go back in time and buy when prices were lower.
at 12:10 pm
People – I love this blog, just discovered it last week. I need some advice. I just bought a pre-construction condo, I’m in the 10 day cooling period. Actually I bought Tridel last month and pulled out after 5 days. Now I am wondering if I am doing the correct thing moving to the competitor next door. I didnt cap the closing costs and my agent didnt suggest anything of that sort. I got 2000 dolllars cash back and a parking spot. Closing is 2013 but as you have said, it could be 2019 who knows! Floor size is 562sq ft but after reading the above blogs, it may be 450 by 2013 and I would have no recourse. Should I go back to Tridel? Or should I just sit it out. The cost per sq foot is good 403.