Developers slash prices for some condo buyers while suing others who try to back out of deals
Derrick Penner
Sun
The number of developers suing pre-sale condo buyers for attempting to back out of their contracts is mounting in the fallout from British Columbia‘s slumping real estate market.
At least six developers have filed a total of 74 lawsuits in B.C. Supreme Court in Vancouver against buyers, claiming they breached contracts by not completing purchases of condominium units. Often, the units are worth less than the original contract price.
Among the companies is Amacon, which announced Tuesday it is slashing prices for both pre-sale and future buyers at The Beasley, an upscale downtown Vancouver development.
Amacon senior vice-president Bob Cabral said The Beasley is an entirely different case than the Morgan Heights project in south Surrey, where the company is suing 16 pre-sale purchasers trying to back out of their contracts.
Because construction of the 33-storey tower at Smithe and Homer hasn’t yet begun, he said, the builder can take advantage of falling construction costs. Other developers in Metro Vancouver also have discounted their prices.
Cabral said Amacon “viewed [reducing prices], rather than as an obligation, as an opportunity to pass on savings.”
The lawsuits are a sign of the tensions that arise when soaring real estate markets suddenly drop, Tsur Somerville, director of urban economics and real estate at the Sauder School of Business at the University of B.C., said in an interview.
Amacon said it is cutting prices in The Beasley by 22 per cent, about $100,000 to $250,000 and more per unit, based on reductions in construction costs, for both pre-sale buyers who signed higher-priced contracts last spring and bidders for 70 to 80 unsold units it will release to the public in early April.
In the case of Morgan Heights, Cabral said, only a small minority of buyers walked away from units that were complete and Amacon had already paid out all of its construction costs, which were incurred at the top of the market
Ross King, president of CONform Construction Ltd., Amacon’s form-work contractor for The Beasley, estimated his company could contribute about one-third of the cost savings per unit, given that concrete work is the biggest cost and his wage and material costs are substantially lower.
King said the construction sector has slowed so much he has laid off about 250 workers, about half his workforce. “The reason I wanted to do The Beasley was to keep the rest of my workforce busy,” King said. “That’s my job, right?”
Amacon had already pre-sold two-thirds of The Beasley’s units at higher prices last spring. Cabral said the price reduction avoids potentially messy legal problems that could arise if the remaining units were sold for less money.
Buyers who try to walk away from their contracts run the risk of losing the deposits they put down; but Somerville said developers also run the risk of losing all their profits if they allow buyers to abandon their contracts.
Somerville said calculating how much risk the company would face from The Beasley’s buyers walking away from contracts if they didn’t reduce prices likely factored into Amacon’s decision.
Somerville said a developer’s choices are to take buyers to court to enforce the contracts they originally signed. But even if the company wins, it still will be dealing with angry customers.
Developers, he added, also do not want to end up holding large numbers of unsold units. Faced with the alternatives, Amacon has decided “the smart business decision” is to reduce prices, Somerville said.
Other developers that have cut prices include the Onni Group of Companies, which is suing 44 pre-sale buyers for walking away from units in a handful of projects. It attracted headlines in January for its so-called liquidation sale of some 375 completed units at prices 25 per cent to 40 per cent off original contract prices.
Earlier this month, Morningstar Homes Ltd. said it was able to cut $100,000 off the construction costs of its new single-family homes, which it would pass directly to buyers.
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