Never Pay the Dealer Up Front

A few days ago, the latest example of a Greater Vancouver property development going tits up and leaving pre-sale buyers between a rock and a hard place occurred.  Not far from where I sit, another condo project has fallen victim to cost overruns and will not be completed on time.  The original developer will have to sell the property.  When a new developer takes it over, they will put the units back on the market at current market values, not the prices buyers originally agreed to about two years ago.  Even with first dibs, the original buyers will have to pay more.

This is becoming a trend in the lower mainland real estate market.  Labour shortages and high commodity prices drive up costs and wreak havoc on schedules.  The developers can’t finish the projects on schedule, on budget, or profitably.  Drop dead clauses are invoked or the project is sold.  Buyers are left in a situation where they’ve effectively provided the developer with an interest free loan for two years.  That’s unfortunate, because they’re not in the interest free loan business.  Nobody is, because it’s not a profitable business to be in.

Now, if I were a cynic, I might think that developers deliberately pre-sell properties at values they know will not be realistic when the project is completed a couple years later, so that they can take buyers’ deposits to the bank and say, “Here’s our share, now how about financing the rest?”  I might also think they deliberately fail to complete the projects before the drop dead date so that they can then raise the price, just as the project is nearing completion.  If I was a cynic.

The problem with paying for anything upfront is that you surrender all the power to the seller.  As soon as you hand over your money, you’re at their mercy.  That’s especially true in a hot market like Vancouver area real estate, where so many people are clambering to get in because they’ve been convinced that they have to.  Once they’re hooked on the idea of buying and hand over their money, the dealer knows they really want it and toys with them for a while.  Then, one day he says, “The thing is, the price has gone up”.  Jonesin’ for their reward, the buyers cough up more money.

Any junkie can tell you that you should never pay the dealer up front.  Maybe he’ll come back, maybe he won’t.  Maybe the quality won’t be what you expected.  And, who knows if what he charges you today is what he’ll charge you tomorrow?  But they do pay up front, because they’re junkies.

This post appears in The Carnival of Consumer Focused Real Estate.

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4 Responses to “Never Pay the Dealer Up Front”

  1. kanadianbakin Says:

    The same thing will happen to Toronto. It’s starting to look like 1980 all over again. These people coughed up big money and stood in line for a week to get a crack at a condo. One of the oldest developers in Florida went under recently.Good Post

    BAKIN

  2. paulmct Says:

    Thanks. Glad you liked it. Thanks, too, for reading and commenting.

  3. Dom Says:

    If the buyers are willing to gamble/invest to get rich fast, then they should also be ready for the risks of “easy money”. Buyers need to realize that there are others who are smarter, greedier, and extremely more opportunistic than they are, so when some of these smart business people offer an easy, fast, and painless get rich scheme, it is important to beware that it all could be that, a grand scheme. Do I feel bad for the buyers, yes for the ones who really wanted a place to call home, and no to the greedy specurealtors (you can’t win all the time). Basically, the developers are doing what really makes sense, get as much money as they can from people who are willing to pay for it.

  4. paulmct Says:

    Thanks for reading and commenting.

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