Current market too pricey for holders of cancelled contracts
Derrick Penner
Sun
DREAM HOME BECOMES A NIGHTMARE: Stephen Bulat stands in front of the house he should have been moving into soon. Bulat is one of 32 home buyers in the Riverbend development whose pre-sale contract was cancelled by the developer, now in receivership. Steve Bosch
Pre-sale buyers in the last phase of the Riverbend housing complex in Coquitlam thought they had found a fantastic opportunity: Brand new single-family homes in a great location at unbeatable prices.
That opportunity for 32 buyers evaporated, however, when Riverbend’s builder, CB Development 2000 Ltd. cancelled their pre-sale contracts just as many of them were preparing to move into the homes that they had played a part in customizing.
Citing delays, skyrocketing construction costs and a construction lender that wouldn’t release its loan, CB Development said it would have to re-sell the homes at current market prices — about $80,000 to $100,000 more than the prices buyers had agreed to in their contracts.
Legal action against CB Development, which was forced into receivership by its biggest construction lender, failed to secure the homes for their buyers.
At the end of foreclosure proceedings that CB Development’s biggest construction lender initiated against the project, all buyers were left with was a chance that they may be able to claim a portion of the proceeds representing equity gains they’ve lost as the homes are resold for today’s much higher market values.
And for at least 32 buyers in the Riverbend complex, the experience has cast a cloud over the whole notion of real estate pre-sales, which have become ubiquitous in Lower Mainland property markets.
Stephen Bulat, a musician and sound engineer, signed a Riverbend pre-sale contract in 2005, and while he tries to stay upbeat, the experience “definitely leaves a sour taste in our mouths about the whole thing.”
Bulat and his fiance “literally stumbled upon this development in the woods” while out for a walk in August, 2005.
Riverbend meant a single-family home in a community where Bulat wouldn’t have to cross the Fraser River to get to work. They agreed to buy in at $344,900, “and that was including GST.”
Bulat said it was exciting to have a hand in choosing appliances and ordering the installation of speaker, microphone and heavy-duty computer-network wiring he needs for his business.
“How often do you get that chance?”
Uma Seetharaman and her husband, Ganga Narayanan, thought they had found a home in Riverbend for the family they want to start.
Nestled among trees near the Coquitlam River, and close to schools, the project “was a nice neighbourhood to start a family,” Seetharaman said.
The young couple was new to Vancouver, having moved here from the United States to follow Narayanan’s work as a software engineer. And Riverbend was their first experience with Vancouver real estate.
They did their homework though, taking a copy of the Riverbend project’s disclosure statement to a lawyer before signing their contract to buy a house for $350,000.
“Emotionally and financially, we invested in this property,” Seetharaman said.
They got back the deposit they put down, plus interest, but instead of moving into the house they wanted, the couple is living in a one-bedroom apartment near Metrotown in Burnaby and cannot afford to even contemplate paying current market prices of $435,000 for the Riverbend home they thought they had already bought.
And Seetharaman is now adamant that they won’t be looking at pre-sale projects that have not yet been built.
“It’s turned out to be a bad dream for us,” she added.
B.C.’s Real Estate Services Act allows developers to sell houses before they are built, Anthony Cavanaugh, communications and privacy officer for the Real Estate Council of B.C., said in an interview.
Pre-sales are governed by the provincial superintendent of real estate, and developers are required to file disclosure statements to the superintendent that outline all material terms of the project.
David Negrin, president of the Urban Development Institute’s Pacific chapter, added that pre-sales have become a necessary element in putting real estate projects together. Banks, he explained, demand to see a certain amount of market interest in a project before they will give developers construction financing.
“At the UDI, we’re very concerned about [the Riverbend situation],” which is a case members have watched “extremely closely.”
Negrin added that he would not be surprised to see the province step in with some action in the wake of the Riverbend case, whether it is stronger enforcement of property disclosure agreements or more consumer protection.
“Obviously [the Riverbend case] is one that is not in favour of the purchasers,” Negrin said. “In our minds, it’s an anomaly.”
Vancouver developers have a good track record of delivering on the projects they promise, and researching a developer’s history is another bit of homework prospective buyers have to do before putting deposits down on their dream homes.
“Are they a well-financed company? What have they built before? How long has the company been in business?
“From a purchaser’s standpoint, these are the questions they have to ask,” Negrin added.
To protect themselves, Negrin said, many developers are taking their analysis of costs to the extreme, because construction prices have been increasing by about one-per-cent per month for the last three years.
Peter Tolensky, a Vancouver lawyer and real estate section chairman for the Vancouver chapter of the Canadian Bar Association, said that pre-sale contracts vary from developer to developer, but “the developers we deal with do not try to strike a bargain with purchasers where they can walk away.”
“It is very, very uncommon for any kind of contract to allow a developer to do what was done in Coquitlam.”
Tolensky added that sellers can try to include clauses that give them an out from contracts in case of uncertainties. “But is a buyer willing to put down a deposit in the face of that kind of provision?”
Peter Simpson, CEO of the Greater Vancouver Home Builders’ Association, said he is starting to field calls from pre-sale buyers asking him whether they should be concerned about their contracts. So he knows that the Riverbend case has cast a pall on pre-sales.
Simpson added that prospective buyers can also take advantage of what is known as the recision period.
Pre-sale buyers have seven days within which they can change their mind and walk away from a contract, which Simpson said gives people time to have those contracts reviewed by a lawyer.
However, he added that a lawyer’s review is still no protection if a developer simply breaks the contract. Buyers have to know who they’re dealing with.
Developers that plan to stay in business will accept losses to “deal with their obligations to the purchasers, and move on [with] their reputations and their brands intact.”
Simpson added that the Riverbend case has angered many in the development community, who worry their reputations may be sideswiped in the fallout.
The 32 Riverbend buyers have “lost a couple of rungs on the property ladder,” Simpson said. They will have to spend a lot more money to get back into the market, “and that’s just not fair.”
