Vancouver Developer Sues Pre-Sale Buyers

There’s a Vancouver real estate developer that is suing pre-sale buyers that are trying to back out of contracts. Amacon has filed a lawsuit against seven buyers that have defaulted on their contracts to buy condos at Amacon’s Morgan Heights development in Surrey. The purchases were to supposed to have completed in December.

CBC article on Developer Suing Buyers

Vancouver Sun article

The Background

Over the years of the Vancouver real estate market being red hot, buying pre-sale condominiums was a sure fire way to riches. Thousands of people made loads of money by buying condominiums at pre-sale (often standing in line for days in order to do so), and then reselling either the contract, or the completed project in the future.

This method worked magic as long as the market continued to rise. However, once the music stopped and prices began to decline, pre-sale buyers are no longer making a proft but losing money instead. Many buyers that are holding pre-sale contracts for yet to be completed condo developments in Vancouver are doing the math. They are calculating whether or not they’d save money by simply walking away from the contract and forfeiting their deposit.

The Details

Unfortunately, it’s not that simple as Amacon’s clients are discovering. The contracts contain a clause that states the developer is able to not only keep the deposit, but also has a claim for damages. That means that the developer has a claim on the buyer for the difference between what the buyer bought the property for, and what the developer can sell it for in today’s market.

Let’s assume that the buyer wrote a contract on a home worth $500,000. Two years ago they put down $25,000 as a deposit. With the market decline the property is now only worth $400,000. The buyer decides that they will not fulfill the contract. The developer has a claim to not only keep the $25,000 but also the $75,000 of value that has been lost.

So far, most developers have been reluctant to pursue lawsuits against their clients. It is obviously a matter of last resort. The developer risks alienating current and future clientele, but if they risk losing enough money, they will obviously have no other choice than to follow through.

What Does it Mean?

First of all, you should always read your contract from end to end. If you don’t understand something, ask. I think most people were happily signing contracts that put them at significant risk in our market. Most of us would have signed those contracts even if we knew what was in them.

Second, if you do hold a contract for a home on which you don’t want to complete weigh your options carefully. Talk to a good lawyer. Talk to a good Vancouver real estate agent as well. There are options for you to get rid of your contract that might be cheaper than getting sued.

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