Presale buyers are in BIG trouble | What you need to know

Recently in a British Columbia Only Realtor's Facebook group, there was a post shared about a very sneaky clause that's been added to the disclosure statement for a new property act. This isn't the first time that we have seen this, but we haven't seen it in quite a while and they're starting to become even more prevalent. This is something that could enormously affect a buyer and the purchase of new construction in BC. So buyer beware. If you have considered buying new construction property, you definitely want to watch this video because you do not want to get burned. Stay tuned. What's good, everybody? It's Darin Germyn from the Germyn Group, where we know you've only got one chance to either buy or sell your next home. So we're here to help you get it right.

So what did we find in these disclosure statements that has got the whole real estate community in an absolute uproar? Well, it is this. It is a clause that is worded, completely legal-ese and as it normally would be. But essentially what it says is that if something called the BCPI increases by over 4%, a developer can now increase the purchase price of the property. The purchase price of a property that was already agreed to, they can increase it by the same amount. What this means is if you sign a contract with a buyer to buy a new home, like a condominium or a townhome, and this little clause was in your disclosure statement, you could see massive, massive, MASSIVE increases to the purchase price of which you already agreed to. The BCPI is called the Building Construction Price Index. This is something that is prepared by Statistics Canada, where they survey buyers from all across Canada on what they are seeing with the prices of residential construction materials. Actually, it's not just residential construction. It's all construction, but what the materials and labor are costing people.

And obviously, I don't think anybody would not understand that prices go up and they have gone up. What is entirely problematic about this, however, is normally when a buyer buys a new construction property, let's say for $500,000, that's the price they anticipate buying it for paying when the property completes, when the project is ready to occupy, let's say in 2025 as an example. So they have been pre approved for this amount. They know how much they make it work and they start budgeting around this amount to pay this $500,000 in the next 3 years or so. Well, with this little clause that's been added to these disclosure statements. Now this means if construction, labor and materials go up, which they likely will, the price can go up as well. Let me give you an example of how scary this can be. Statistics Canada reports that in the first quarter of 2022, residential construction costs went up 5.6%. 5.6%. That is a huge increase, and that's only in three months. Here's an even more incredible number in the last year. The same Stats Canada reports that the prices of residential construction across the eleven major markets in Canada went up over 20%. 22.6% in the eleven major Metropolitan areas in Canada.

That is a monstrous increase. This means that if you had a presale contract and this was in the disclosure statement that you could see a 22.6% increase in the price that you pay for your property when it completes. Now, let's stretch that out over the course of a couple of years where we maybe brought a pre construction in 2019 and then saw the massive boost in property values from the COVID-19 pandemic. Imagine the new property prices of a home that had a little clause like that. Now, of course, developers are going to have construction costs go up. I don't think anyone is worried about that. But that is certainly completely unfair for a buyer, especially because of the retribution that could occur if you're unable to pay that price. A very prominent British Columbia lawyer got wind of this as well and started soliciting the other lawyers in their office to get some opinions on this new type of clause we're seeing in these disclosure statements. They asked a few questions of those in their office and this is what those were.

Is it legal? Yes, it is. The majority of them thought it was 100% enforceable and was clearly written down. In the disclosure statement.

What if prices drop by over 4%? Do they also reduce the cost by 4%? That's not in there. It's only for price increases, which is a huge upside for the developer. What if it's not in the contract or the disclosure statement? Well, it has to be there. So if you sign a presale or bought a presale and that kind of wording is not in there, you're off the hook. It's okay. And lastly, what happens if the buyer can't complete well, they probably got a huge problem on their hands in the closet that was surfing around this Facebook group. There was no recourse for the buyer to get out of this contract. Now, you have seen probably on the news about developers doing this in Ontario as an example and buyers getting completely pushed out of the market due to price increases. Imagine buying a new construction home three years ago. The price is now 50% higher and your only recourse as a buyer is to get your deposit back if you can't complete on the deal, and that is only if that is allowable within the contract. That means you have missed out on all of the gains of the value of the property over the last few years, or however long since you've entered into the agreement, and you could stand potential litigation from the developer for not fulfilling your terms of contract.

This is an incredibly big problem if you sign an agreement that has this clause in it, and you have to be ultra cautious about buying new construction. And if you see a clause like that, my advice to you run away. It makes you kind of think that should a developer, if they're going to include a clause like that, should they even be allowed to really pre sell a building and have a clause like that in there because it gives zero assurance to the purchaser about what the actual purchase price might be when the property completes? Perhaps anybody in the political space that might be watching this video that deals with real estate, you might consider that should a developer be allowed to pre sell units that far in advance with a term or clause like that in either the contract or the disclosure statement because of how incredibly detrimental that could be to a purchaser, they should really likely only be able to pre sell if the date of completion is very close and the construction and material and labor are all budgeted for and maybe even paid for in lieu of being able to offer that this term is incredibly problematic.

Which just goes to show another reason why so many buyers, they actually don't think that they need a realtor when they go in to buy new construction. They kind of do it on their own. That's a big no no, folks. You should always have a professional real estate representative watching out for your best interest and making sure you know exactly what you're getting into when you're buying either new or resale properties. Anyways, guys, that's it for this post. I would love to hear your comments below on what your thoughts are about this clause. I will also post the actual clause in the comments so you can read it for yourself as well as a link to the BCPI on StatsCan website where you can check out the increases month over month or quarter over quarter rather or year over year. While you're buzzing around in the details down below, also be sure to pick up one or two of our Buyers and Sellers guide. We just created a new one for Sellers that is absolutely awesome. I think you're going to love it. Don't forget to subscribe. We'll look forward to seeing on the next post and as always, we appreciate you reading.

I'm Darin from the Germyn Group. You've only got one chance to buy or sell your next home. Let's get it right.

See you next time. Bye.

As mentioned in the video as well:
Screenshot of the clause-

Watch the full video here:

DOWNLOAD our NEW free PDF: The Falling Market Survival Guide

DOWNLOAD our free PDF: 6 Things First Time Home Buyers Screw Up!

SCHEDULE a time now to talk about purchasing your next home!

SUBSCRIBE to get the latest Germyn Group videos:

Watch our #DrinksWithDarin series:

Connect with us to learn more about how we can help you get it right, the first time!

Visit The Germyn Group WEBSITE:
Like The Germyn Group on FACEBOOK:
Follow The Germyn Group on INSTAGRAM:
Email us at, or call 604-542-2444

The Germyn Group
Darin Germyn PREC* & Adam Howsam
Macdonald Realty LTD | 604-542-2444 |
No comments

Post Your Comment:

The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Real Estate Board of Greater Vancouver (REBGV), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the REBGV, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the REBGV, the FVREB or the CADREB.