Pre-Construction Buyers Are Failing to Close: The Perfect Storm

If you want to know how big the problem is with pre-construction condos that are now approaching completion or have recently been completed, all you need to do is look at some of the new condos and you'll see the high number of listings that are being sold by the builder. Why are they being sold by the builder? By the way, as a consumer, you wouldn't know that, but as a realtor, well, we can tell when that's the case. They're being sold by the builder, not because the builder held back those suites necessarily, although builders will hold back a small allotment of suites until completion, because they assume they'll be worth more at that time. They're being sold because in some buildings, 20, 25 and 30 percent of those buyers who purchased the property for five years ago, aren't able to get their mortgage. They can't close on the property. Why?

It's like a perfect storm. Interest rates are much higher, so they no longer qualify for the mortgage that they were pre-qualified for four years ago. Some of them have fallen into some financial challenges outside of the challenges of qualifying for the mortgage, because the economy, while it has its problems, and then, you know, maybe the worst thing is that these properties are not appraising out at what the buyer paid four years ago. They're worth less. They're not worth what the offer was at the time, and we're not talking they're off by like three or four percent. No, they might be worth 20 or 30 percent less than the buyer paid. That is a perfect storm. That's why in some buildings, 20 and 30 percent are not able to close. And what happens to those poor people? It's a very sad thing. They end up in breach of contract, and you know what builders will do?

Well, in all likelihood, well number one, they're going to keep the deposit that that buyer paid, which is probably 20 percent of the purchase price, so that's $150,000 to $250,000.

And then when the builder sells that unit at a lower price, they're going to sue for damages. They're going to say, hey, I sold you this place for $1.3 million. I now was able to sell it at $900,000. I'm going to keep the $250,000 deposit plus another $150,000 plus damages. It's a horrible situation. It's actually heartbreaking. And you know, those folks who bought those condos, frankly some of them were sold down the river by people who didn't have their best interests at heart. It's by people selling in condos, sales offices who worked for the builder and who had pumped up the market and said, Toronto will never go down. It's only going to go up, up, up, up. And then Fomo takes over. If you're missing out. So, you know, I actually have a lot of sympathy. I don't like it how these people are being portrayed as stupid for doing what they did. No, they probably followed guidance from someone. The question is, were they following the guidance of someone who had their best interests at heart? That's what it's all about. If you need help with real estate, I will always have your best interests at heart. Send me a message. I'll get working for you right now.