pre-construction condos

When Will People Learn about Pre-Construction Condos?

Pre-Construction

7 minute read

September 24, 2018

Pre-Construction Condos

What’s the definition of insanity?

Isn’t it something like, “Doing the same thing over and over again, and expecting a different result?”

I’ve come the conclusion that pre-construction condo buyers are insane.

Or, perhaps it’s me that’s insane.

Over the last decade, or even just looking at the past 2-3 years, I have written this same blog post over, and over, and over, and the subject matter never changes.

A pre-construction condo project is cancelled.

One or two buyers decides they’re not going to take it laying down, and they put their names and faces to articles in the newspaper, and it makes for an enthusiastic read.

And then another condo project is cancelled, and more people are upset, even though perhaps many of them could have, would have, should have known this was a possibility, given how it gets written about every time a project is cancelled, and they pose for a photo, and give a quote to the newspaper.

And this goes on, and on, and on, with no signs of people ever learning.

So I’ve decided that there are three ways in which we can stop this from happening ever again, except only two of these ways are viable:

  1. People start taking responsibility for their actions.
  2. Nobody ever buys a pre-construction condo again.
  3. The good ‘ole government swoops in and saves the day.

Is it obvious which one simply isn’t ever going to happen?

Every time a condo project is cancelled, and people cry foul, and I write about it on my blog – and call them out, I get hate mail.

But I call it love mail.  Because I love reading it, and find it so entertaining.

Just think about it for a moment – if you could have your very own clown show, somehow make its way to your office, and act out a routine in front of you, you could basically just sit back, relax, and take in the show, right?

That’s how I feel when I get emails from people who think that I’m somehow to blame for their misfortunes, which have little to do with “fortune” and more to do with decisions.

I have never sold a pre-construction condo to a buyer.  Never.

There are many reasons for this, and the long-time readers could probably list them off just as well as I could.  But among the bevy of reasons is that the condo developer can cancel the project at virtually any time, for any reason.  And it seems as though it’s happening with increasing frequency.

People tell themselves, “It’ll never happen to me.”

They’ll say aloud, “The odds are slim.”

True.  But that’s like with anything in life.

You know the saying, “You could walk outside and get hit by a truck tomorrow,” and I personally take it as a metaphor for just about anything in life, good or bad.  And when it comes to the bad, we seem to always think it won’t happen to us.

“If you play with fire, you might get burned.”

No kidding.

So if you, were like me when was 11-years-old and like many kids my age, obsessed with fire, would you complain when you lit a firecracker and it went off in your hand?

That actually really hurt.  I was on the roof of my garage with my friend Will, and we were taking out the tiny, individual explosives from a pack that you were supposed to light as a whole.  We were lighting them one at a time, and throwing them into the air.  I had lit so many, that it became automatic, and for some reason I decided to shake the fire on the end of the match out, and then – POP – the firework went off in my left hand.

I remember the look on Will’s face.  Just pure shock, and that element of “What’s going to happen now?”

I felt nothing at first, and then the pain came down with exponential force, and it was probably the most excruciating thing I had ever felt up to that point in my life.

The worst part was – I had to climb down from the garage with one hand!

I ran inside, and my Mom put Ozonol on my hand.  I don’t even know if that’s the prescription for a firework going off in one’s hand, but that’s what I got.  That, and ice.

My dad came home an hour later, and I was laying on the couch crying.  My mom explained to him what had happened, and he came over and asked how I was doing.  I thought he was going to take pity on me, maybe give me a hug, or tell me it was going to be okay, but he didn’t.

Instead, he asked, “Before you started lighting fireworks with your bare hands, did you think that this was a possible outcome?”

I was defiant; I told him, “No, no, you don’t understand.”

I went on to explain, “Me and Will lit, like, a hundred!  It was fine!”

My Dad asked me again, “But did you think this was a possible outcome?”

I was mad.  I thought he’d show me some love.  Although as I’ve come to realize, he did, just in a very different way.

The irony is – I never thought that a firework going off in my hand was a possible outcome.  It just didn’t enter into my head, or my thought process.  I wasn’t really being careful at all, or thinking about the downside.  Yes, I was 11-years-old, and that’s what kids do, er, did, back then.  I think every kid is bubble-wrapped in 2018.  I’ll find out soon enough.

I was playing with fire, and I got burned.  Not literally, but exactly as it would go, in a metaphorical sense.

Tell me that you don’t want to hear me spin this story, and this metaphor, into reasons why the sad-sap buyers of Icona Condos should take responsibility for their actions, but I’m going to anyways.

I’m just sick and tired of everybody in life, in every which way, blaming others for their own failed outcomes, based on decisions that they, themselves made.  And then comes the automatic ask – that the government should help them out.

Don’t get me wrong, I think what developers do is awful, and it shouldn’t happen.  I’d be all for a complete re-write of the Condominium Act, which is something I’ve asked for countless times over the last decade.

But two wrong’s don’t make a right.  That’s something else I learned when I was a child.

No, it’s not “right” that a developer can cancel a condo project at will, and that buyers get “screwed.”

But it’s legal.  And it happens.

So when it does, I wish I could say I was surprised at all the outrage, from people that knew this was a possibility, but don’t want to admit it.

I was 11-years-old when that firecracker went off in my hand, so cut me some slack.

But here we have “grown-ass adults” walking into condo sales centres with a lit pack of matches, ready to blow shit up.

“Condo Buyers Call For Better Protections As Second Major Vaughan Condo Project Killed”

There’s the article for those that want to read it.

But you already get the gist, in three points or less:

  1. A condo project was cancelled.
  2. Buyers that knew this could happen, are upset.
  3. Buyers want the government to fix it.  Preferably with the use of Emmett “Doc” Brown’s time machine…

What’s interesting about this condo cancellation, and as the headline above explains, Iconica Condos is the second major project in Vaughan to be cancelled, or “killed,” if you’re looking for emphasis, in the past few months.

And what’s going on with the first one?

Oh boy, you’ll love this…

“Vaughan Condo Buyers Take Developer To Court Over Cancelled Condo Project”

Yes, that’s right.  They’re suing!

Hey, look, good on them.

What the developer did was “wrong,” even if it was actually right.  And if they want their day in court, more power to them.

But I’m pretty sure even they, deep down, know this is a waste of time.

I would also bet my cute little dog that the law firm acting for the buyers is not working on a contingency.

What did Ben Affleck say in Good Will Hunting?

 

Great movie.  Reminds me I need to watch that again..

Word to the wise: if you’re looking at litigating, and your lawyer suggests a contingency – he thinks the case has merit.  If he suggests a retainer, then that should tell you something.

An important excerpt from that second article:

Cosmos buyers signed “take-it-or-leave-it” contracts that gave the vendor, one of the numbered companies, “sole, absolute and unfettered discretion,” to cancel the project if it found the financing terms unacceptable, said Charney.

He compared it to someone making an offer on a house conditional on mortgage financing. “Then if (the buyer) want(s) to drop the deal all they have to do is say, ‘I didn’t like the mortgage rates or I couldn’t get the mortgage I wanted, see you later,’” he said.

But wait a minute, didn’t we just have this conversation last week?

This lawyer is suggesting that the second example there is unfair?

Because that’s exactly how our real estate market works!

I can’t believe he chose that as the example to try to highlight how “unfair” the condo developers are being.  It makes zero sense to me.

Every condition included in an Agreement of Purchase & Sale, or let me rephrase – every condition that should be included by a capable buyer agent with experience, should have the words, “…at the Buyer’s sole and absolute discretion.”  It simply can’t work any other way.

Otherwise, you get into a back-and-forth about what constitutes grounds to not provide a waiver of the condition.

But now I’m straying too far off topic, even though this is an important point, as there was some confusion by readers with respect to the content of Wednesday’s blog, but I digress.

I say again: I don’t like the legalese that’s contained in the pre-construction condo agreements.

But I don’t pretend it doesn’t exist, like many buyers.  And if the condo was cancelled, as it specifically states that it could be, in the agreement, I wouldn’t cry foul.  I’m not 11-years-old anymore.

So tell me something – are these buyers insane, or am I?

Because this is going to continue to happen, and my guess is that it won’t be more than another 6 months before we read another headline like the ones above.  And I won’t stop being brutally honest with my thoughts either.

Remember this blog post last November?

“Another Pre-Construction Condo, Cancelled. Who Is To Blame?”

You wouldn’t believe the heat I took over this.

I only wish I found a way to be even more heartless, condescending, and cruel this time around.

Well folks, we have a municipal election coming up!  A slightly smaller one than originally planned (too soon to joke about that?), but an election nonetheless.  Who wants to bet that a prospective city councillor or two might jump on this hot-button topic and promise to “look into it?”

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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13 Comments

  1. Francesca

    at 7:31 am

    David, I agree with your thoughts. As much as I emphasize with these buyers and might think that some of them took a blind leap of faith and were naive to believe that their project wouldn’t be cancelled, they were foolish to think that it couldn’t happen seeing how often it has been happening lately. We were young and naive and bought our first and only pre construction condo townhouse back in 2003 (back in the day when I believe many pre-con projects were actually better value/cheaper than buying re sale) and we never did it again as although our project went through we had to deal with it being delayed twice by almost a year and even had to resort living with my parents for a few months between selling the condo we were living in and then moving into the townhouse. I don’t know what we would have done had we not had the option to live with my parents for that period of time (AIR B NB short rentals didn’t exist back in 2005). Then when we moved in we had to deal with so many deficiencies and find out that some of the space was not what we envisioned from the sales brochure. As much as it was great to have a brand new townhouse in a central location it stopped us from ever buying pre-con again. I get that todays young buyers are shut out of the expensive real estate market and that pre-con buying may be the only way to buy something somewhat affordable in an up and coming area like Vaughan downtown or that they don’t have to deal with bidding wars that way but they really should know better. Maybe if only investors bought these condos pre construction and not end users we would stop seeing all these articles in the media on this topic. As for your question about kids being bubble wrapped nowadays..you will find out they totally are compared to when we were kids. I have an 11 year old and we give her a lot more freedom than most of her friends get. Some are so sheltered that I have no idea how they will survive as teenagers or young adults.

  2. Jackie

    at 9:23 am

    I agree with this in general about pre-construction condos, but something is definitely odd with the Icona cancellation. From the the Globe and Mail article on this cancellation on September 20th, “There’s another potential complication in the Gupta plan: when Icona Hospitality Inc. bought the hotel and land on Hwy. 7 in 2005 from 2748355 Canada Inc., the deal came with a restrictive covenant that did not allow non-hotel development on the parcel. On July 6, Justice Peter Cavanagh ruled those restrictions would remain in place, even though the Gupta-owned company had presold residential developments on the land.”

    If the developer but in writing to the purchasers that they were cancelling because of financing and there’s evidence that the developer cancelled after backing down from appealing the July 6th ruling they might have a more compelling argument in the law suit.

  3. Joel

    at 12:03 pm

    These are such annoying situations. I would think it rather improbable that this builder is just going to sell this land and let someone else build it. They are more likely to get an approval for another 10 stories and charge $100 sq/ft more and make an extra $10 million on reselling this.

    People are greedy and builders are taking advantage. In other areas of investing and life the government has policies in place before giving over your money. Exempt Market Products, which have similar risk to new builds require a waiver and that the purchaser show that they have a good understanding of risk/rewards and how investments work.

    Developers should have a page that says “I am aware the developer can cancel this project at any time for any reason and I will lose my ability to buy this condo” and have everyone sign.

    As long as buyers are making money on some condos and telling their co-workers and friends, we are going to continue to see people continue to buy pre-builds with a chance to make money.

    The small percentage of people who were buying a condo to actually live in it are the ones I feel bad for. If they had to sign whether they would be living in it when buying and had a tax implication if they changed their mind or sold, I would like to see the developer have to provide them a suitable replacement or monetary subsidy to find one. For those buying this as an investment, they rolled the dice and lost.

    1. Condodweller

      at 12:35 pm

      This is exactly right. In fact, I believe I had brought up the exempt market analogy and the requirement to sign a CLEAR waiver in a comment to a previous incarnation of this post.

      I often formulate a response in my head but often don’t have the time or just choose not to actually respond. This has the effect of me never knowing if I actually did or not. In this case, I’m pretty sure I did.

      I believe I also challenged David on whether he thinks consumer protection organizations should fold their tents and go home based on his logic.

  4. Numberco Owner of Real Estate

    at 12:40 pm

    To some extent I agree with David’s post but also have some sympathy for the buyers. Presumably if one was to want to buy a brand new condo (which is not an unreasonable ask), they would wait till completion to buy from someone who would have bought pre-construction? At the end of the day, someone needs to take the risk of buying pre-construction and the only way this would change is if the government steps in.

    Correct me if I am wrong but is selling pre-construction not a requirement for most developers to get financing?

    So if we get over this hurdle, then the onus shifts to the buyer to ensure that the contract is not worded such that for example, a builder cannot get out of a deal just because of not getting financing it likes. This is completely a buyer’s responsibility.

  5. QMJHL

    at 1:56 pm

    To too many people, “the odds are slim” means “can’t/won’t happen.” In the same way, when there’s a forecasted 10% probability of precipitation, people get all peed off when it rains, which of course, on average, it will one-tenth of the time that there’s a 10% probability. The other nine, you’ll stay dry, over the long run, but of course as John Maynard Keynes said about the long run,…

    1. Condodweller

      at 1:37 pm

      The funny thing about this is that even when the chances of a negative outcome increases we still proceed. I read somewhere that 50% of marriages fail and 25% of the ones that don’t it’s because of the kids. So basically you have a 75% chance of failure and yet people and yet, what thousands/tens of thousands, get married daily.

      Even worse is seat belts. Wearing a seatbelt reduces your chance of dying in an accident by what, 90%? There is a law that you have to wear one and yet people continue to die needlessly by not wearing their seatbelts.

  6. Batalha

    at 2:07 pm

    “…everybody in life, in every which way, blaming others…”

    Okay, obviously you know it’s not “everybody” (even in the so-called developed world, let alone among the billion-plus people with real problems, like access to food and water) but all or most of the “everybodys” get media coverage (in media almost no one accesses) but hey, hyperbole sells, right? So just choose not to buy, and get on with your life rather than blowing a gasket.

  7. daniel b

    at 2:28 pm

    i think developers only cancel projects when they have no choice but to. they’ve spent millions in soft costs (admittedly, much of which they will recover if they sell the land for more than they paid), and their reputations are on the line. Cancelling a project would not be undertaken lightly and not be undertaken if the project could move ahead just at lower margins than before.

    I offer this up because the reason projects are cancelled is important. If it’s an inevitable risk in the market then perhaps nothing should be done and it’s caveat emptor for the buyers. If it is, as many believe, unscrupulous developers blithely cancelling projects because their obscene profits have dipped to marginally less opulent levels then we probably do need further legal protections.

    For what it’s worth, the cost psf to deliver condos has easily gone up by $200 psf or more in downtown Toronto in the last 18 months (don’t know how it’s risen in Vaughan). Further, if you don’t show enough profit margin on a project (at least ~15%), the bank won’t lend you the construction financing. No one builds without construction financing…

  8. Carl

    at 2:34 pm

    A business opportunity for insurance companies: cancellation insurance for pre-construction sales. You can hedge everything else these days, so why not condo cancellations.
    And if a legal action against the developer is warranted, an insurance company is in a better position to do that than individual buyers.

  9. Carl

    at 3:31 pm

    Just because something is legal now doesn’t mean it must be forever. So yes, there is a role for the government. As an example, we could have a law that when a construction project is cancelled, anyone who already bought into it is entitled to a share of the land where the building was going to be. That’s what they would effectively get if the construction was completed.

  10. Condodweller

    at 12:58 pm

    “So I’ve decided that there are three ways in which we can stop this from happening ever again”

    The fact that people continue to buy precon at higher than “new” ready to move in prices tells me that only one of your solutions is viable.

    I am a big proponent of the tough love psychology but I believe there are reasonable limits. This has gone over the limit, and I don’t believe it being legal makes it ok.

    At a time when frying pans have advertising in them that carry a warning to remove the cardboard/sticker before first cooking in it, you’d think a warning on the sale of a home where you could end up in financial ruin might warrant some sort of notice.

  11. Craig MacDonald

    at 10:51 pm

    Don’t you think these are sometimes canceled during real estate spikes? When they pre-sell a bunch of condos and then realize they could make millions more if they stop the process and then start over again in a few months? They’ll likely pre-sell all of them but more much higher amounts… Just my two cents…

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