That’s what I keep telling people who have purchased in pre-construction, with a 2016 closing date, who come to me looking to sell their “condo.”
You don’t own a condo. It’s that simple. You own a piece of paper, which I believe is actually a liability, but that’s another story.
So if you want to sell your piece of paper or “assign” it to another buyer, how do you do it? Honestly, I have no idea. I don’t know who is buying assignments, or why they’d buy from you when they can buy at the sales centre. Let me explain…
$700 per square foot.
That’s what somebody paid in pre-construction, and they’re looking to make money by selling the condo that won’t be ready for three years.
No problem right? Just get a cool $900/sqft when the building is done, and Bob’s yer uncle. That should cover all your costs, and put some money in your pocket.
Wait – you don’t think the market for this standard, cookie-cutter condo that you paid 120% of fair market value for through the developer will end up increasing another $200/sqft? Well, you can just sell your magical piece of paper, or “assign” it, right?
Well, with assignment fees through the developer, commissions, legal fees, and some sort of “incentive” to the new buyer or assignee, you’re going to come out with a loss – assuming you can actually find a buyer, since the developer prohibits you from marketing the magical piece of paper on MLS.
Don’t want to take a loss?
Then I don’t know what to tell you.
In any market, pigs get slaughtered. And I’m seeing more and more people who have put down 5-10% on a pre-construction condo, with another 15-20% due in the next year, who don’t have the funds. These folks are in big trouble.
It’s the real estate equivalent of a “margin call,” is it not?
Tony
at 9:50 am
No it wouldn’t be a margin call. A margin call is when you need to put up additional capital because the value of the underlying security (the condo) has gone up or down in value. This would be viewed as a simple liability.
^_^
Jeremy
at 4:58 pm
I guess it’s worse than a margin call, in that the event is entirely predictable and inevitable.
AndrewB
at 5:58 am
Anyone wanting to buy a condo should go resale. When I was looking,we went through 10+ units looking for the right layout. Floor plans are deceiving and new builds are priced at the top of the market with high fees.
ScottyP
at 10:48 am
Developers lie. That’s all you need to know about pre-construction.
Rob Fjord
at 4:42 pm
point is, action is required during a margin call, either pay up or liquidate, so davids analogy is correct.
Dave
at 8:05 am
Not exactly. Your options are to either pay up or default. Liquidating an assignment can be extremely difficult, especially if the building is not close to completetion (developer has many similar units for sale)
Carol Wagner
at 1:41 pm
I’m a Realtor in Vancouver and I think this is a dangerous way to buy real estate. Instead of buying a pre-sale hoping to flip it, buy when the building is finished but not totally sold. The developer is keen to get rid of those last few units and move onto their next project. Deals can be made though the developer isn’t keen to acknowledge this. If they don’t accept your first offer, wait a few weeks and try again.
Dave
at 12:53 am
But I can’t wait. I have to buy now, before prices go down.
A.T. Halmay
at 11:12 am
1. Newspaper publishers eager to become video producers need to learn that quality counts. It is better to stay out of video than to present poor quality video which simply annoys readers. This video has a sound problem. The picture is fine. The sound sucks. Do it right or stick to print.
2. Of course, you don’t own a condo after having put down a deposit but it does give you certain rights which can be resold to an eager buyer. If you’ve overpaid in the first place, yes, you’re in trouble. I recall an engineer friend who put a small deposit on a building on Yonge Street just below St. Clair Avenue. The building had substantial frontage and housed a large pool hall. My friend sketched a plan that divided the building into two parts with a walkway in the middle thus creating a mini-mall. He showed his plan to the agent who had handled the sale. The agent became excited and said he knew the very man who would love to buy this. My friend asked for a much higher price than what he will have had to pay when his deal closed. The agent was outraged but the new buyer was happy to pay it because he felt the value was there. So he sold the RIGHT to complete the deal and made himself an enormous ROI.
mark
at 5:30 pm
I have just experienced what this agent is talking about. If some won tries to sell you a preconstruction condo .RUN the other way and if you think it,s an investment the builder won,t tell you about the HST you will be charged not being your residents. Like I say do not get involved in this scam.
justsayin'
at 12:49 am
re: your recent precon video; I’ve bought twice in pre construction and both closed showing positive gains. So, it can work but it’s important to buy smart real estate. Selling your “investment” during the construction phase is difficult to your point but it is not impossible. And you don’t always lose.
Mr. blogger, I’d suggest avoid using “stupid” to describe some of your clients questions.
You sound like a bar moron yapping about real estate. And someone who has been screwed in pre con phase because you didn’t do your home work.