Fortunately, the government implemented a 10-day cooling off period during which purchasers of presale condominiums—not resale, nor ground-related housing—can rescind their offer of purchase.
Manu Singh, broker of Right At Home Realty, lauds the cooling off period because home purchases top the list of the biggest financial decisions people will make in their lives. A lot of purchasers, especially in cities like Toronto and Vancouver where the buying frenzy has caused people to buy impulsively for fear of missing out on a great unit, don’t realize that preconstruction units do not always get delivered as advertised.
“Preconstruction and buying builder-direct is not for everyone,” Singh told REP. “If you think about it, there’s a lot of hoopla around getting certain units. Sometimes you need those 10 days, even just to do a double-check.”
More importantly, without the 10-day cooling off period, the inability to secure financing could leave the buyer contractually obligated to abide the purchase agreement.
The 10-day cooling off period can also be extended under extenuating circumstances.
“You have these 10 days where you can go to the bank and see where you qualify for a mortgage,” said Singh. “I have a client who qualified just fine, but she got hung up on the appraisal side. With the tightening of the mortgage rules, banks are being more conservative with risk management practices; that includes third-party appraisals. In this case, the appraised value came in considerably lower than what the builder asked for and we agreed upon, so the 10-day cooling period can be extended if there are valid reasons. The bank got another appraisal that didn’t work out, but had it not been for the cooling period she’d have been on the hook.”
Ten-day cooling off periods also ensure a measure of builder accountability.
Alex Balikoev, a Core Assets Real Estate sales agent, says agents working in builders’ sales centres aren’t regulated and can essentially say whatever they want, true or not, to get a buyer to sign the dotted line. Buyers lured by false promises tend not to employ sales agents, and, as is often the case, they get carried away by floorplans and models, and make impulse buys.
“The people working in sales centres make much less commission, so for them every single sale matters,” said Balikoev. “I always advise clients to work with real estate agents who are well-versed in preconstruction. They’ll often give them access to projects that are not available to the public. Also, when they work with a real estate agent, the chances of them backing out of a deal are low because they’re making informed decisions.”
Both men agree that the cooling off period is an excellent example of consumer protection, but Singh thinks it can go further. Builders are not required to return deposits expeditiously, and that could potentially short-change a buyer who needs their money back to purchase a unit elsewhere.
“The government should specify in the cooling period how many days the builder has to return the deposit,” said Singh. “These are large sums of money and the builder will sometimes give the run around. There are a lot of reasons they give, but ultimately, it’s not my client’s problem and the money should be returned promptly.”
Singh advises clients that their lawyers should put verbiage within the document stating a deposit must be returned within a certain number of days should the client rescind the offer during the cooling period.
“I had it happen with another property we wanted to bid on, where the buyer was in a rut because the funds were tied up and she didn’t have enough for the deposit.”
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