Two areas involving builder agreements of purchase and sale that cry out for action by the new homes provincial watchdog are disclosure of additional costs and unit size.
Last week Stella came into my office to review a builder purchase agreement for a unit in a flashy new Toronto condo project. During the negotiation of the deal, both the buyer and the builder were represented by separate real estate agents.
Initially, Stella was enthusiastic about buying her own place — even if it wasn’t going to be ready for as long as six years. By the time she left my office 90 minutes later, after we went through the offer together in detail, she had changed her mind and decided that she was going to exercise her right to back out of the transaction.
Stella’s unhappy experience reveals a huge gap in consumer protection that needs to be remedied by Ontario’s Tarion Warranty Corporation. (Full disclosure: I am a past member of its board and Consumer Advisory Council.)
As I walked Stella through a schedule to the builder agreement, which lists the extra charges she would have to pay in addition to the $392,990 purchase price, her enthusiasm for the purchase dropped away. Although the extras are detailed in the agreement, they were never mentioned in the sales office and are effectively buried in the 41-page document.
Despite their obligations as registered real estate agents, neither the builder’s agent nor her own agent ever mentioned the charges to her.
In total, the extras came to about $12,000 which cannot be mortgaged and would have to be paid on closing.
But that’s not all. Buried in a thick volume of disclosure materials, there is an obligation for each purchaser to contribute proportionately to the purchase of a $744,000 superintendent unit and a $265,000 guest suite. Stella’s share would be $1,952, plus interest, at the Bank of Canada 10-year bond rate plus four per cent, repayable over the next 15 years.
The overall total of undisclosed extras at closing and afterward would be about $16,000.
Although all these charges are by law required to be set out in the purchase agreements or the disclosure materials, there is no obligation to mention them in any meaningful way in the sales office or disclose them prominently on the first page of the offer form.
As a result, buyers who do not have their offers reviewed by their lawyers in the first 10 days after an agreement is signed, often experience huge sticker shock on closing.
This needs to be remedied both by Tarion and by the Real Estate Council of Ontario. Builders and their sales agents should be required to speak up and be transparent about extra charges.
The other area which cries out for Tarion regulation is the failure of most — but not all — condominium builders to include in their purchase agreements floor plans that show linear measurements and the total unit area. Size is, perhaps, the most important factor in buying a condo and measured floor plans are crucial to buyers.
Some of these charges typical in builder agreements — that came to about $12,000 — cannot be mortgaged and must be paid upon closing:
Bob Aaron is Toronto real estate lawyer. His Title Page column appears on this blog, Move Smartly, and in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website aaron.ca Email Bob