TorontoRealtyBlog
Maybe I didn't need a question-mark at the end of that title. An exclamation mark may have been more appropriate.
But part of me just can not believe that this is going on.
At the same time, part of me had expected it all along.
RECO sent out an email to its 100,000++ members on Wednesday, which as usual, is a day late, and without any real "teeth." Let's have a look at their bulletin, and discuss what's going on in the pre-construction industry…
Oh wow.
One look at that velvet rope, and I'm reminded just how much I love being married…
Back in my youth, before online dating/judgement apps, when people used to naively go out in search of meeting other human beings, I did frequent the odd nightclub.
And toward the end, I hated every minute of it.
It began as a love affair, however. I started going to downtown Toronto nightclubs when I turned 19, and when I was in my tight-shirt, silver-chain, hoop-earring phase, and when Junior Jack, DJ Jean, and DJ Jurgen were pumping beats.
It wasn't so much the nightclubs I liked, but rather the maneuvering within.
I couldn't care less where I was, and who I was with, but rather I liked the challenge of trying to finesse my way in to whatever VIP area, rooftop patio, or members-only space existed.
I was pretty good at it.
Actually, that's me being modest. I was a goddam champion. I could walk inside a nightclub, watch the managers, waitresses, bartenders, doormen, and the clientele, figure out who was who, and come up with a con on the spot. By the time I was 20, I could con my way into any club without waiting in line, and then scheme my way into their "VIP" area, which evidently, was exactly the same as the rest of the club.
But it didn't matter. I was barely an adult, and I loved playing the "game" against both the stakeholders in the establishment, and the masses who were competing against me with the same goals of skipping lines, and going places once inside.
That lasted for a couple of years.
Fast-forward a full decade, and I had completely lost the taste for it, and simply resorted to paying bouncers and doormen to let me go where I wanted.
By the time I had met my now-wife, and we were dating, I absolutely hated going "out."
There's a seven-year age gap between Jenna and I, so when was 30-years-old and wanted to stay home on Friday and Saturday nights, she was 23-years-old and wanted to go out. (thankfully now we're 37 and 30, and we are both old curmudgeons)
I became so cynical, so salty, and so morose, that I couldn't handle the lineups, the doormen, and the whole process.
I couldn't stand watching some fingerless-glove-wearing, below-average-intelligence, overweight slouch playing God for 4-hours on Saturday night. And I as much as told them that, on several occasions. I couldn't stand watching the doorman ask a group, "How many are you?" and if the group said, "five," he would wait a few seconds, pretend to think, and say, "I can only take four."
It wasn't unusual for me to hear this, and shout, "That's the dumbest F****** thing I've ever heard, and I've heard a lot of dumb things," which would then cause the doorman to tell me to leave, which was great, because I just wanted to get a slice of pizza and go home. My wife was really, really mad at me for making a scene like that once…
But the whole process bothered me to no end.
And the main reason was because I knew how the rouse worked, and I hated being a pawn.
The lineup outside the club was only there to make the club look busy.
Bouncers would line people up, even though the club was at 40% capacity, and then take them in very small groups, every five minutes.
The key to making people want something, is to make it seem unique, rare, and worthy.
How else do you get somebody to pay $350 for a $30 bottle of booze? Put them in a "special" area, and give them the privilege to subject themselves to a 1000% markup.
I could go on, but I've been on this rant before. Let me see if I can find an epic rant from a few years ago…………..ah, yes, HERE. This is from way back in 2010. King West condos "one day" selling for $700 per square foot, you say? Nah, that'll never happen!
In any event, you might be wondering "What does this have to do with pre-construction condo sales," or you might have already figured it out.
The VIP's, the velvet ropes, and alas, the greasing of doormen!
I've been comparing nightclubs to pre-construction sales centres for the better part of a decade, and now the rest of real estate has finally clued in!
On Wednesday, RECO emailed every licensed agent in the province of Ontario with the following bulletin:
Charging "Entry Fees" For Pre-Construction Units
The Real Estate Council of Ontario (RECO) has become aware of a potentially unlawful practice regarding pre-construction real estate. It is being alleged that some registrants may be charging "entry fees" or "admission fees" to prospective buyers of pre-sale homes.
These fees supposedly give buyers access to purchase properties before they are available to the public or front-of-the-line status. Media reports have also stated that registrants have asked for cash payments and refused to issue receipts. They may also be sharing the proceeds with the developer's staff.
There are specific regulations regarding how registrants accept funds from consumers:
Full Disclosure – A document must be presented to potential buyers regarding any funds collected. The document must spell out:
- what those funds are for;
- how the funds are to be handled;
- how the funds will be distributed, such as toward the deposit on a property; and
- the conditions for the return of the funds if the consumer does not decide to make a purchase.
Under the Code of Ethics, you are obligated to treat every person you deal with in the course of a trade fairly, honestly and with integrity. And you must promote and protect the best interests of your clients. With that in mind, if a consumer pays an "entry fee" and does not purchase a unit, it is expected that the fee will be returned to the customer.
The buyer should also receive a receipt for any funds they provide.
Trust Accounts – All money provided by a buyer to a registrant must be forwarded to their brokerage. That money must be held in the brokerage's trust account until such time that it is to be disbursed appropriately.
Seller Permission – "Entry fees" can't be requested or accepted unless the registrant has received explicit consent of the seller of the property to do so.
It would be permissible to accept certain entry fees, only if the registrant complies with the rules listed above. If you are aware of a registrant breaching these rules, please file a complaint with RECO. If you suspect that employees of builders are improperly requesting or accepting fees without proper disclosure to buyers, you should inform Tarion, the regulator of home builders in the province.
Consumers have the right to know what they are paying for, and what will happen with their money. Transparency and upfront documentation are key to remaining in compliance with the regulations.
Media reports.
Really?
That is how RECO is getting its information?
This is pathetic.
RECO is pathetic.
They make up rules as they go along, honestly.
Crap like this:
"With that in mind, if a consumer pays an "entry fee" and does not purchase a unit, it is expected that the fee will be returned to the customer."
Says who? And where?
Where is this written? I'll tell you where: nowhere.
This is literally RECO making this up on the spot.
And how about this:
"If you are aware of a registrant breaching these rules, please file a complaint with RECO"
Awesome.
So RECO isn't going to do anything to regulate, oversee, change, monitor, lead, guide, et al. They simply want real estate agents to rat each other out, and they'll take it from there.
In any event, hammering on RECO wasn't the point of this blog.
The point, is that the pre-construction "game" is out of control.
Paying to get inside the nightclub sales centre ahead of the rest of the pack? I've heard that one before!
With real estate in Toronto as hot as it's been, and with people willing to blindly purchase pre-construction condos by submitting "offer sheets" for virtually every model suite in the building, it's no surprise that developers, and their agents, are reverting to these gimmicks.
A colleague of mine who works for Re/Max told me that one of his clients wanted to purchase a pre-construction condo in a particular development.
He called the sales centre, and spoke to the in-house agent, who told him, "We're completely sold out."
Five minutes later, my colleague's buyer-client called the same in-house agent, who told him, "We have twenty-eight units left," and asked him to set up an appointment.
My colleague called back, and once again, was told that they were sold out.
This is the game that's being played.
And perhaps we could spin this off to another blog topic, but condo developers are hand-picking the agents they want to work with, and calling them "VIP's," when in reality, these agents are simply the ones who will bring their buyers into the sales centre, working in the best interests of the developer, and not providing any real representation.
Think about it: with 40-50% of all pre-construction condo sales falling through during the automatic "10 day cooling off period," the developer wants the buyer to be represented by an agent who will do everything to ensure that the deal doesn't fall through.
A typical buyer-agent would insist that the buyer have a lawyer review the thick package of documents that accompanies a pre-construction condo sale. I spoke to one particular buyer this week, who is absolutely buried in a building on York Street, who said, "My agent told me that the lawyer's review was a waste of money."
The poor girl. Her closing costs were almost 20% of the purchase price.
It's clear to me that not all, but many of Toronto's condo developers are only working with a select group of pre-construction condo "experts," who have sold their soul to the builder community.
I've heard from countless buyer-agents that they can't get in the door, metaphorically or literally, of new condo developments, and that the buyers have to go with the "VIP's" and "experts."
And now the media, and RECO, are picking up on the fact that people are greasing doormen paying agents to get inside ahead of the crowd.
I'd love to hear from the "pre-construction experts" on this one. Sell ten units in a development, win a Mercedes, eh? Yup, you're definitely working in the best interest of your buyer!
Oh boy. I need a drink.
If only I could get into the nightclub. It's cold outside, and I didn't wear a jacket because I'm too cheap to pay for coat-check…
The post Charging "Entry-Fees" For Pre-Construction Units? appeared first on Toronto Real Estate Property Sales & Investments | Toronto Realty Blog by David Fleming.
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