Should you buy that assignment? Are Foreclosures really a good deal? And what happens when one party of a real estate transaction decides not to complete? Real Estate Lawyer Ken Pazder joins Adam and Matt in this riveting season finale to answer these questions and so much more. Big risk always exists where there are big rewards and the best way to protect yourself is through knowledge upfront. Listen Up!
We are back over the next two weeks with two of our favourites from the vault. Happy holidays! Thanks for joining us in 2019 and we look forward to a prosperous 2020 with the VREP Community! – With love, your SECRET admirer.
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
Tell us about yourself.
I’m a real estate lawyer with 20+ years of experience and at Pazder Law we’ve closed 30,000-35,000 deals so far. We’re pretty familiar with the market here.
Notary VS lawyer. What’s the difference and what’s the benefit of using a lawyer?
Lawyers go to law school and have more training. Notaries don’t have that same education on legal matters that can affect a conveyance. When you start out, every conveyance is a simple one. But when something goes wrong, notaries will tell you to go to a lawyer. Notaries and lawyers usually charge the same. If it goes smoothly, great, but if it doesn’t, you’ll wind up in a lawyer’s office. So why not start there anyway?
Is there a type of transaction that you know will be a problem? Foreclosures? Assignments?
There’s no particular transaction that spells trouble but it depends where it’s coming from. Use an experienced realtor. Sometimes clients don’t know about property transfer taxes, closing costs, etc. So use an experienced realtor or broker. It’s all about who’s involved, not the type of transaction.
What is the biggest risk in the legal transaction of buying/selling real estate in Vancouver?
It comes down to proper contracts. If a lawyer has written a contract properly, especially on things like the empty homes tax, that will mitigate most risks.
On the speculation tax VS empty homes tax
The speculation tax follows the owner, not the property. It almost never follows the property. Whereas the empty homes tax specifically follows the property, not the owner. Empty homes is City of Vancouver and spec tax is province-wide.
It’s easier to collect for the city if the tax follows the property, not the owner. So the new owner might be responsible for missed back taxes.
Why should people complete on properties?
The way contracts work in BC, the buyer is on the hook. The buyer could lose their deposit and could be on the hook for further expenses from the seller. If the seller takes a further loss when they resell, the buyer is responsible for that. If you can buy, buy. Wait out the market because it will come back. You don’t want to default in a bad market.
On walking away from a presale
The ramifications between leaving a presale contract and a resale contract are the same – the buyer could lose their deposit and incur further damages from the seller. We have seen people try to get out of their presale contracts. By the point where the developer has funding (after the first year), it’s usually too late. I tell people to close if they can because the market will come back at some point.
If the developer doesn’t close, they only have to give the buyer their deposit back. Presales are very one-sided contracts. That’s where the risk comes from.
The biggest risk on presales is you have no idea when they’re going to complete. Even if the developer says 1-2 years, that could be stretched. A regular transaction will close in a month or two, but a lot can change in 2-3 years.
Would you buy a presale?
I would. But only because I’m confident I could close on that presale no matter what. I would buy a conservative presale. But if you’re not in that position, it becomes more risky. I’ve had clients buy a few presales or buy to their financial limit, and that can be a problem.
What happens if a seller decides they don’t want to complete on the sale of their home?
Usually they just have to give the deposit back to the buyer and that’s it. The buyer could sue them, but they have very little damages to sue for. Unless it’s a very unique home, the buyer could go buy another one, especially if prices haven’t gone up. So does a buyer really want to engage a lawyer and sue? Probably not.
It seems the seller is in a better position in real estate contracts. Can a buyer go after a seller who doesn’t deliver on things such as working appliances, home clean of debris, etc.?
He could make a small claims action, but that could take a year or two. And at the end of the day, all you have is a judgment, not money. It’s not an expensive process to sue in small claims court but it’s not a cheque right away.
On the challenges of assignments
Assignments are when the original buyer doesn’t want to complete on a presale – either because she wants to flip it, can’t afford to complete, or has had a change of heart. Developers control assignments – they decide whether buyers can assign or not. Sometimes they’ll put add a fee so they get a cut or they’ll say you can’t assign until they’ve sold all of their units.
The second hurdle, after the developer, is the price. The original buyer may need to leave some of her money on the table in order to sell her assignment. Both the original buyer and the assignee are on the hook and one of the two needs to close.
On the risks of buying an assignment
There is a risk of not being able to see the unit if you’re buying an assignment. Even if the original buyer saw the display suite, those are just models and not to be relied on.
The assignee needs to know when the deposit is signed over to him and will need to know how much and when he will need to pay the lift – the original buyer’s profit on the assignment. If you pay the lift up front and the deal never closes, you’ve bought a deal that’s worthless. You shouldn’t pay the lift until the property has been completed.
The tax implications are mainly for the assigner (original buyer). I can’t think of a major developer who hasn’t ultimately closed. So your risk is mitigated if you look at the developer and have confidence in their work.
How do foreclosures work in BC?
Foreclosures here are supervised by the court. All foreclosures go through the BC Supreme Court. The court may grant a redemption period of six months if there is equity in the home. The court generally insists the home be sold for the current market value. The myth is that there are deals on foreclosures but there are not in this jurisdiction. In fact, you might end up paying more if you’re bidding against other people in court.
What are the risks when buying a foreclosure?
The biggest risk is what happens to the property between the time you buy it and the time you get possession. There’s no guarantee it will be in the same condition as when you viewed it. If the foreclosing company has taken possession of the property, you’re somewhat guaranteed to receive it in the same condition. But if the owner is still there, there’s a risk that the owner could trash the place, take out the fixtures, refuse to leave, etc. So as a buyer, you want to know who has control of the property.
Another risk is if the registered owner has become a non-resident and the property has gone up in value, you could be stuck with capital gains taxes. You could ask the foreclosing party where they served the foreclosure papers, but that still doesn’t guarantee residency. The empty homes tax is also a risk – however, you may be able to stick that onto the foreclosing party.
Can you share a horror story from your work as a real estate lawyer?
There was a pretty bad one a few years ago in White Rock. Everyone thinks a new home warranty is great but it’s not as good as you think. For a house, the max warranty is $200,000 (and $100,000 for a condo). A client in White Rock bought a brand new house that had been sitting for a while. The realtor didn’t check the warranty very carefully as the clock was already running. In year one, almost everything is covered by the warranty but in year two, only the big things are covered. After buying it, our client realized there were many more problems than their warranty covered. They couldn’t go after the realtor or the seller, and the client was battling cancer at the same time. So you need to know when that new home warranty came into effect.
Any thoughts on the market in 2020?
I think it will start picking up. 2019 has been busier than 2018, especially the second half of the year. The market seems to be pushing up from the bottom rather than being dragged up from the top. It used to be the top-level properties pulling prices and activity up but now it’s the opposite, with more activity in the lower priced market. All signs point to a busier 2020!
Were you surprised how quickly this downtown turned around? Was it worse or better than you thought it would be?
It was probably a little worse than I thought it would be. But this is a major city and people want to live here. These downturns can’t last that long. Even the government’s best efforts to destroy the market can’t diminish demand. Government intervention hurt the market and it’s coming back almost despite the government.
Things will never be affordable in Vancouver – what world class city is affordable? Everyone says we need more density. But Hong Kong has more towers than anyone and they’re not affordable. You can’t make Vancouver affordable. So how do you help people to buy? Increase wages and decrease taxation. Crashing the market won’t work. If you want to live here, it’s going to be expensive. That’s a fact of life for every big city that people want to live in.
Find about more about Ken Pazder.