Agent Will

Paying for anything on a promise and expecting delivery as promised is fraught with risk no matter what the item. For example, you take your car to a shop to have brake work done, are given an estimate, and expect your car to be repaired as promised and delivered on time. Several hours later you get a call that additional work is strongly recommended and that the part needs to be ordered and, additionally, your car will not be ready until the next day. You now have two options. Take your car someplace else and start all over again or bite the bullet and agree to a new price. Either way you have lost a lot of time and been caused greater inconvenience. At least it has likely not cost you any money, yet. Another example would be when you order a book online and are told it is in stock with delivery in three days. You put down your credit card and are charged then patiently wait for the book to arrive. Three days go by and no book. You check online and find your order is “filled” so you wait. A week goes by and still no book. You check online again and find that the book is no longer in stock and will not be delivered, the money has been refunded to your credit card (this happened to me with a major online book seller). You are out time and deprived the satisfaction of good service. At least the money was returned.But what if you put down a fairly sizable deposit on a pre-sale, or pre-construction, condo/home and then it is not delivered on time if at all or is delivered in a manner different from what you thought you had purchased. This is happening with far greater frequency than many are comfortable with. It’s not just small developers who are having difficulty, it’s major players with big names and big marketing as well.

• Chandler Developments marketed by Rennie (the biggest new project marketers in the city)- lawsuits, double selling, receivership of some units.
• Eden Group - Cancelled three projects, most recently Sofia at 85% complete, may be looking for a new developer to complete.
• Riverbend Projects - Cancelled contracts of the latest phase and will resell at a higher price to avoid failure to complete.
• Bambu in Victoria - Cancelled before construction began with Anthem Properties set to take over (no further news).
• Infinity in Central City Surrey - Original developer hit financing wall on this mega-sized project and is now being completed by a different developer.
• OMA - Completed but with some serious differences between what was “sold” and what was delivered including floor changes for some contract holders and missing walk-in closets.

That is an incomplete list. There are others out there, I’m sure, and I welcome your additions in the comments below.

Developers cover their assets by including statements in the contract to the effect that what is delivered my be changed at any time. They also include a clause that if they do not deliver on time (the time range is usually six months beyond an expected completion date) that the contract holder may cancel the contract and receive their deposit back. In this market developers are only too happy to oblige knowing they can resell at a higher price. The contract holders are often out of luck. They have lost time, money, and often the chance for home ownership as the market has moved beyond them.

Even worse would be for those who have purchased assignments and handed the Assignor a lift, or profit, for a project that is not completing or has been cancelled. Most would feel pretty safe in purchasing a building 85% complete and, if not advised well, would have handed over several thousands of profit which is not guaranteed by contract and difficult to recoup (if they can even track down the Assignor who may not be local). Can you say “lawsuits”? Lesson here: DO NOT pay lift/profit until completion. Placing it in trust would be an acceptable compromise, but DO NOT release the lift money to the Assignor until completion. If an Assignor won’t accept that, do not purchase the assignment.

Now I sympathize with the developers. They face a whole host of variables that cannot always be predictably accounted for. Construction costs rise with materials and labour shortages. The city’s public workers go on strike and delay the issuance of permits. The weather, or some other act of God (ie fire as in the case of Copperstone in New Westminster) forces a delay in construction or a rebuilding on a near completed project. It cannot be easy to be a developer. You need to pre-sell to show demand and confidence to the project financiers and you need to make certain loose representations which, with all good intention, may not be kept. But while I sympathize with the developers I cannot support them when they fail to communicate well enough to the buyers the risks involved or fail to deliver on their verbal or demonstrated promises no matter what clause they put in their contracts.

I hate to paint with a broad stroke all developers because there are great ones out there who do deliver, big or small. What I am trying to convey to my clients is that what you see may not be what you get and that purchasing something, anything really, site unseen carries with it some risk. Buy a resale and you know pretty much exactly what you are getting. By off plan and you really only have some idea but will not know until it is delivered.

There is now talk that a private members bill will be put forward in the BC Legislature to protect consumers from what is becoming apparently a very risky method of purchasing real estate.

I do not believe government needs to get involved. I have a whole another solution to the problem. This is my modest proposal. Developed and Delivered as Promised Insurance. Too long a name? OK. Use an acronym. DDPI (or DeeDippy as it could affectionately be known). A developer wishing to pre-sell a project will have to make certain guarantees both on fit, finish, layout and completion times. These will be in each and every contract. To ensure what is promised they will have to insure each of these contracts. An insurance company certainly will charge a higher premium to riskier ventures and lower premiums to proven developers with solid reputations which will, naturally, be built in to the price of the units. A developer who cannot successfully market the project with those premiums built in will be faced with either the option to cancel the project or to sell without the insurance. A buyer of such a pre-sale benefits from having an ironclad guarantee that what they think they are buying is what will be delivered. A buyer who chooses to buy into a project without such insurance would do so knowing the risk they face. Should a project fail to complete as insured the Buyer would collect the benefits (deposit plus the increase in leveraged value). Say a 25% deposit on a $500,000 condo, $125,000, cancels with comparable resale condos fetching $600,000 ($100,000 increase) at time of cancellation. The Buyer would receive $225,000 from the insurance company ($125,000 deposit plus the difference of $100,000 between original contract and cancelled market conditions). If the market drops the Buyer would receive their original deposit of $125,000 back, not less.

Benefit to Buyer: Assured that the project will be delivered as promised or that their risk in the project was nullified at the cost of a small premium built in to the contract.

Benefit to Developer: Buyers feel more secure in their investment decision and increased demand.

Benefit to Insurance Company: They will only insure those who meet high criteria standings and are masters of mitigating risk so they are sure to profit from this.

It’s win-win-win and will drive poorly managed, flighty, incompetent developers out of business as they will have no loopholes to successfully fail on delivery. Failure to do so would be result in being penalized as uninsurable at a salable premium therefore becoming unable to compete in the marketplace.

What do you think? Is this feasable? Anyone in the insurance industry want to get the ball rolling? Do you have any better ideas of how to protect the consumers?