Risks Buying Pre-sale


There are a lot information buyers are not aware about when purchasing pre-sale residential units such as strata-tittled apartments and townhouses, such as the risks involved.


Here are some risks associated when buying pre-sale: 

*   A proposed development may be delayed, or may not proceed at all, for a variety of reasons including: inadequate sales; delays in obtaining financing or building permits; higher than expected costs for construction materials; and an inability to hire skilled construction workers.

*   If a proposed development is delayed beyond the completion date set out in the presale contract, the contract may provide that it is terminated unless both the purchaser and developer have agreed to an extension.

*   If market prices have increased during a delay in construction, a purchaser may be asked to pay a higher purchase price in order to extend the original contract or obtain a new contract.

*   There is also a risk during a delay that the developer may not agree to an extension or new contract and instead sell the unit to another purchaser. 

*   Delays in development may require prospective purchasers to arrange temporary accommodation or delay moving from their existing homes. 

*   There is also a risk that real estate prices may decline in the future. If the developer completes a pre-sale contract within the time set out in the contract, the purchaser may be obligated to complete the purchase at the agreed price, even though the real estate may have declined in value. 

*   A purchaser may wish to assign their contract to another purchaser prior to the completion date. Depending on the specific terms of the pre-sale contract, assignments may not be permissible, or may require a substantial assignment fee to be paid to the developer. 

*   Depending on the specific terms of an assignment, the new purchaser may not recover any payments made to the initial purchaser and developer to allow the assignment. 

*   A pre-sale contract may allow the developer to substitute equivalent materials or make adjustments to the layout of the unit or the development.


It is important for all prospective purchasers to appreciate those risks in order to better understand any existing pre-sale contract and make a more informed decision about whether or not to enter into a pre-sale contract.



Source: Financial Institutions Commissions Of BC; www.fic.gov.bc.ca.