David vs Goliath: The Preconstruction Buying Battles in the GTA

31 May 2016
Rita Chan

David vs Goliath: The Preconstruction Buying Battles in the GTA

As a real estate broker that obsesses over client care, I recently came across an emerging practice that was a sobering reality check. The experience challenged my ability to deliver what should have been a straightforward transaction. My client was eager to purchase a preconstruction condominium unit as a primary residence. There was a particular project he had his heart set on, and as per standard protocol, we showed up on the first day this development was open to VIP agents. It seemed like it was a done deal, but nothing could be farther from fact.

Fast forward a week and I had the grim news to break to my client that, “all the units had been assigned.” I probed the real estate firm representing the new development relentlessly to get a reasonable explanation as to how not a single unit was available for a qualified buyer with VIP representation. Even after multiple calls and visits to the office, I could not obtain a cohesive answer. Industry insiders were buzzing with talk that all the units had already been sold out even before the VIP launch date. The developers continued the charade, aggressively marketing the launch, creating PR hype, and getting hopeful buyers to line up – allegedly while knowing that there wasn’t a single unit available. My assumption is that although all units were already sold out for the first phase, the developer and affiliates strung along the potential buyers who were end users to keep the momentum going for the second phase. This way, they already had a roster of willing buyers in a frenzy who would be willing to pay higher starting prices on whatever became available.

The general structure of preconstruction marketing works in a tiered system: A large percentage of units are reserved and sold to clients represented by various sub-tiers of VIP agents and a smaller portion are allotted for friends and family, all other agents, and the grand opening potential buyers. When a project is hot, it isn’t unusual for competition to be fierce for the remaining units after the VIP’s (often international investors buying multiple units) have had their picks. What is unusual is for the end user buyers to be entirely excluded - but under the façade of a level playing field. What’s even more perplexing is that my client and I were in the VIP roster.

As a real estate broker in the GTA for almost a decade, I have seen my share of fierce competition – it’s an expected part of the business. What I find unsettling is the increasing casualties caused by grey area practices where legal regulation is just as grey. There are daily news stories about the “Davids” of Vancouver and GTA being edged out on the real estate front, by the international “Goliaths.” The odds seem stacked against the end user buyer: Their chances of even being given the opportunity to buy a hot preconstruction home can be nil before even trying, and even if they can get their foot in the door, the housing costs are so inflated by the investing frenzy of the “giants” they end up shelling out way above regular market value.

So where is the proverbial sling shot in all of this? What tools are out there to defeat the “giant?”

1. Be proactive. If you already know you are leaning towards purchasing a preconstruction property, communicate it to your real estate broker ASAP. Timing is everything – the earlier your agent can get on the developer’s radar, the better.

2. Stay one step ahead. Once your agent is aware of your interest in preconstruction properties, they can also pre-register or gather potential project information before it even hits the market. This also decreases panicked decisions and gives you more choices.

3. Don’t put all your eggs in one basket. Keep your options open and consider a few properties instead of pouring all your hopes and energy into one. Regardless of preconstruction or not, buying real estate is all about timing and availability.

4. Stay positive. And keep it all in perspective. Yes, hot preconstruction properties may seem impossible to obtain amidst the big players, but clear goals and an agent who will go to bat for you, can make all the difference.