September 22nd - 2015

Serving buyers in the pre-construction phase

When a property is not yet built, ask many questions and use due diligence to prevent surprise and disappointment for your buyers, advises one Toronto REALTOR®.

Buyers consider floorplan

When a property is not yet built, ask many questions and use due diligence to prevent surprise and disappointment for your buyers, advises one Toronto REALTOR®.

Buyers consider floorplanby Arun Kumar Rajalingam

I started my real estate career working for a marketing company that represented many reputable builders of new homes and hi-rise condominium projects. Initially I was representing builders. Since then, as a REALTOR®, I have also helped home buyers purchase pre-construction units. My exposure to both sides of the transaction leads me to believe there is room for greater transparency and due diligence to serve our buyers better.

In a resale transaction, we are trained to do our due diligence as buyer representatives. We strive to protect our buyer’s best interests by obtaining a home inspection, land registry search, insurance claim history and so on. However, the sales process is very different when the actual product is not yet built. The old saying comes to mind: “If you can't touch it, don't buy it,” yet pre-construction prices may save buyers thousands of dollars or get them the best choice of suites or lots in a sub-division. With that in mind, here are some issues to watch for.

Closing Dates and Occupancy Dates: As industry professionals, we know that new home and condo projects are often delayed, yet consumers aren’t always aware of this. Ask the developer about potential delays in closing dates and manage your buyers’ expectations accordingly to save a lot of anguish. You can also ask about pending approvals to understand what hurdles lie ahead for this project. In my experience, high-rise condominium projects are more likely to face delays than low rise projects.

"The more approvals the builder has received, the less likely that drastic changes will confront your buyer.”

Marketing Hype versus Reality: The marketing for any new project includes glossy brochures, stunning architectural renderings, high-resolution photos with panoramic views, and so on. However, during the actual construction phase, there is a huge possibility of disconnect between the architect’s vision, the developer’s approved plan, and what is structurally possible. Before the buyer signs the Agreement of Purchase and Sale (APS), ask the builder’s representative about everything that can possibly change in floor plans, renderings, amenities, parking, etc. You should also research existing and future buildings nearby that might obstruct the view from your buyer’s unit once built. The more approvals the builder has already received for a project, the less likely it is that drastic changes or nasty surprises will confront your buyer.

Expectations on Space and Finishes: I have witnessed first-time buyers’ expressions of surprise when they finally took possession of their new condo. The actual room sizes did not match the amount of space they had imagined, their furniture didn’t fit, or the ceiling heights had been measured from the sub-floor. Buyers said they felt helpless because they got much less than they bargained for. There were also instances when the entire floor plan was flipped to the opposite orientation, changing their unit’s layout in a way they did not expect.

Buyers often expect their unit to match the dimensions of the model suite at the builder’s sales centre. However, model suites are not always built to scale and can appear larger due to extra lighting, condo-sized furniture and the absence of a ceiling. As well, many buyers assume that “what you see is what you get” -- not realizing that model suites can contain upgraded finishes and extras that are not part of the standard package offered on signing.

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Closing Costs: These can be another surprise for buyers who don’t fully grasp the range of expenses they may encounter. I have seen buyers stunned by the final bill for development costs, HST on new appliances, utility hookup fees, sub-meter charges, and other expenses for which they had not budgeted. During the 10-day rescission period, I urge my buyers to get the APS and condominium documents reviewed by a lawyer who has experience dealing with pre-construction transactions to understand any possible charges and fees that can arise during closing. As diligent REALTORS®, we are within our realm to ask the developer about anticipated costs and to negotiate caps on levies for our clients.

Educating Buyers: Now that I am a REALTOR®, I work hard to put myself in the shoes of my buyers. I try to anticipate possible hurdles that might be thrown their way when purchasing a unit still in the development stage, and these vary with each project and developer. During the initial consultation, I explain and educate them on the process, timelines, costs, possible delays, deposit structure, etc. I also ask about their lifestyle and expectations from this purchase to make sure this project works for them. I also recommend that my buyers talk to other consumers who have been through the complete purchase cycle on a new property to understand potential hurdles and challenges.

I accompany my buyers to the project’s presentation centre to help them visualize the finished space of the actual property or even show them a resale condo unit with a similar layout.  I ask many questions about timing, closing costs and upgrades to help them to figure out the bottom line on all expenses. I also explain the Tarion warranty for new homes and condos and I specify the key dates, putting particular emphasis on what is covered under the builder’s warranty and what is not.

VIP Launch Events and Limited Time Offers: The marketing of new properties can be extremely slick, and I advise buyers not to succumb to developer tactics that urge them to sign something, right here, right now, in a limited time offer or because there’s a so-called “lineup” of other buyers and the units are “almost all sold out by now.” In these instances, buyers end up hardly having time to think, and they get caught up in the moment. As a REALTOR®, I don’t give in to these pressure tactics and I urge my buyers to take time to review things with me and with their lawyer. Builders do not use OREA forms, but that does not change the fact that most parts of the agreement are negotiable. 

Builder’s Reputation and Industry Regulation: I feel that checks and balances must be put in place on the new home industry to reduce the likelihood that consumers will feel misled. Currently, developers can start marketing and selling a project on paper even before all the necessary approvals have been obtained, leaving the door open for many changes to the final product. Also, purchaser deposits for low-rise freehold products are not held in trust, nor is there a 10-day rescission period.

Some reputable builders value customer loyalty over the bottom line. These developers have taken voluntary steps to improve transparency, point out upgrades in model suites, and obtain approvals on many levels before they market a project. Yet other developers use the status quo to their advantage. I value my relationship with developers, and I realize that they may pay commissions to co-operating agents. However, we as REALTORS® can’t allow a potential commission cheque to cloud our judgement. Our buyer’s interests must always come first and we must do our due diligence at all times.

As REALTORS® who are representing our client’s best interests, it’s up to us to help our buyers navigate the process. As an industry, we all benefit when our buyers are well briefed, get what they expected, and have no surprises.

Arun Kumar Rajalingam Arun Kumar Rajalingam is a Toronto REALTOR® and a volunteer on the marketing and communication committee at the Ontario Real Estate Association.
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