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The Facts About Multifamily Residential Presales

Over the years, thousands of British Columbians have entered into contracts to buy new homes before the construction of their homes had begun or during the construction period. This type of real estate transaction is commonly referred to as a presale transaction. It most often involves the buyer of a new home and the developer entering into a purchase agreement to complete the transaction at a future date when the home is completed and ready for occupancy.

This is usually a win-win transaction for both the homebuyer and the developer. Buyers are able to select the homes they want to buy and developers know, with some certainty, their ability to successfully market and finance the projects they are offering to the market.

Rewards Usually Outweigh Risks

Buying a home is likely the largest personal financial transaction a consumer will make, and there are many complex decisions involved. Building a new home is also a complex process that stretches over a relatively long period of time and has inherent risks for the developer. These risks are typically associated with a free market for materials and skilled trades, and changing interest rates.

Even though there are certain risks associated with presales, there have been very few instances where the purchase agreement was not honoured by the developer. When a developer is unable to complete the transaction, the purchase agreement will usually specify how the intended transaction is unwound. A deposit made by a buyer must be held in trust by a lawyer, notary or REALTOR® and the full deposit is returned to the buyer if the home builder/developer is unable to meet their commitment to deliver the home. The only exception to this is described in NOTE 5 on page three of this information brochure.

Do Your Homework

Before deciding to buy a new home in a presale transaction, a buyer should do their homework and feel totally comfortable with the builder/developer and with the terms of the purchase agreement. Start by researching the business history and reputation of the home builder. Ask for references from past homebuyers who have bought from the developer. Seek the advice of your REALTOR®, lawyer, mortgage broker, banker or other professionals and determine whether they know the history of the developer.

Read the purchase agreement and the disclosure statement in their entirety. Hire your own lawyer who has experience in residential real estate transactions. Ask them to review the purchase agreement. Make sure you ask them about wording in the purchase agreement that you do not understand. Clarify all of the relevant dates, including dates on which the developer has opportunities to terminate the purchase agreement.

Finally, there is a seven-day rescission period during which a buyer may rescind their purchase offer.

Cross Reference List for Presales of Multifamily Residential Development Properties

The following is a list of important information for buyers of multifamily units under development. Buyers unfamiliar with such projects may require extensive consultation with knowledgeable REALTORS®, accountants, lawyers or notaries familiar with presale investments. This list is intended as a starting point for buyers to determine whether enquiries, advice or clarification is needed.

Use the following table to locate and understand important information in the disclosure statement and the purchase agreement. These two documents are central to a presale transaction and outline the specific terms being agreed to. The far right-hand column in the table provides a cross reference to the notes section on pages 3 and 4 of this presale cross reference document. The notes explain the key information items in more detail. Once completed, keep the table for future reference to quickly find important information about your transaction.