Presale dangers ahead: A declining market could expose buyers to significant risk

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If preapproved for a mortgage at a lower rate, some buyers will be dealing with the extra cost of a mortgage at a much higher rate

. And if the lender now values the unit at less than the purchase price, the borrower may no longer qualify for the mortgage amount. That would mean the buyer would have to find the money to make up the difference in value, or try to sell the unit, known as an assignment sale.

“Think of the thousands of presale agreements that are coming up for closing this year,” says Ron Usher, real estate lawyer and general counsel for the Society of Notaries Public of B.C. Mr. McFadyen says that most buyers do not do their due diligence on obtaining full mortgage approval in advance, safeguarding against the unexpected.

“If completions in 2023 will be at, or near, highs, and slower market conditions persist, I would anticipate lower-than-average completion totals in future years,” Mr. Greiner said. In the U.S., there’s less risk for the buyer but more risk for the developer, says Bob Rennie, who’s marketed many condos in Seattle.

This is not one of those years, Mr. Rennie says. He cites immigration levels and pent-up demand for housing that is less than $1.5-million, which is 80 per cent of sales on the Multiple Listings Service. He figures buyers will act as soon as there’s a small rate drop.

 

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