'Buyer beware' when purchasing dream home: Aulis
By AdvocateDaily.com Staff
Homebuyers must heed the old adage of "buyer beware" to avoid pitfalls when making that major purchase, says Toronto general practice lawyer Patrick J. Aulis.
Not following that advice could result in a nightmare scenario for anyone who is buying a home, says Aulis, founder of Aulis Law Firm Professional Corporation and North York Mediation.
He offers this advice to buyers: don't rush to sell your existing home, do use a realtor, and you must read the fine print in the contract. The most important thing potential homebuyers can do is book a consultation with a lawyer but, he tells AdvocateDaily.com, when the market is hot there may not be any time to seek legal advice.
"In a heated market, in the midst of a bidding war, if you make the deal conditional for seven days so your lawyer can review it and the guy beside you says he has a cash deal with no conditions, you're not going to get that house," he says.
Aulis says two things boggle his mind when clients are buying a home: those who commit to buying a property without getting mortgage pre-approval or qualification, and people who don't use a realtor.
"We don't see it too often — people have a deal to buy a house and don't have financing, but they've already got a binding contract to buy the place," Aulis says. "It's good to have a realtor."
He recommends people understand the five key points of buying a home to avoid disappointment.
Be aware that developers can, and often do, push back possession dates on contracts clients sign for new builds — and the permission to do so is in the fine print.
"The first date they give you is usually rather optimistic," Aulis says. "They are rarely ever able to give you possession on that first quoted date and they have the ability to push those dates back several times."
Those shifting dates could be pushed back up to two years.
Whatever the reason for the delay — whether it hasn't been brought to the buyer's attention or they fail to appreciate the implications — it can cause problems, Aulis says.
"You think you're going to be moving into your new place," he says. "You've cancelled your lease or sold your other home or made arrangements but you might suddenly find yourself caught in the middle of this change of dates."
The second issue concerns deposits for new builds.
"People will generally put down a relatively small deposit," says Aulis, but it is often inevitable that a series of further deposits will have to be made.
"It's not uncommon for them to add up to a 20 per cent deposit, which is considerably higher than what you would need to put down on a new home because the builder is essentially using that money to fund the construction," he says.
That leads to a client's money being unavailable to them for a considerable length of time if the closing date is delayed.
Third, when buying a property that is scheduled to be built, there's always the possibility that construction won't begin at all, Aulis cautions.
"The builder says they're sorry, the project is not viable, or they were unable to secure financing or maybe the builder had some kind of internal problem, a bankruptcy or something and the project is cancelled," he says.
The buyer will generally get their deposit back but now faces a dilemma.
"The market has continued to increase and that $60,000 deposit has been sitting there and when you go back to the market, you may not be able to afford an equivalent property with that same down payment because prices have gone up," Aulis says.
"And from a human perspective, you've thought about buying the unit, you're geared up for it, it doesn't happen, and a year and a half down the road there's no prospect of moving into that house you planned on," he says.
Fourth, Aulis recommends buyers understand that builders have considerable leeway to make changes and amendments to the building, ranging from something insignificant to the colour of the bricks or a different material used as a finish.
"So the end the product may not exactly conform to the pictures they sold you and that you fell in love with," he says.
Aulis notes while the pre-built condominium market has been rising consistently for many years, there's always the possibility it can go the other way.
He tells the story of one couple who signed a contract for a pre-built $1 million condo, expecting by the time they closed the deal that the property would be worth at least $1.3 million.
Mortgage approval was in place but after 18 months of waiting, that condo's value dropped to $800,000.
Aulis said the couple then found out their house, which they were planning to sell for $600,000, had also dropped in value to $500,000. And the mortgage company based the percentage of what it would lend the buyers on the condo's current market value, not the $1 million value of their signed contract.
"It's a nightmare scenario," Aulis says. "If they don't close, they breach their deal and the builder will sell it for $800,000. They will then be liable for $200,000 in damages."
The couple will now have to consult with a financial advisor and decide whether to "bite the bullet" and take the loss while hoping the market corrects, Aulis says.
Despite the recent "stumble" in the market, he says his firm is hearing the housing market is on the upswing.
"We're doing many more deals this year than last, and we're starting to see a bit of a recovery," Aulis says.