Off the Plan Purchase (gone wrong)

[Francesca C]

Hi Everyone

Just wondering, have any of you purchased land from a developer and by the time it was ready for settlement the value is at least 100k too much.

I have decided I do not want to settle on this block. It is all within the correct times frames and contract conditions.

My intentions where too hold this land and build my own house on it however, it is way over priced for the current market and i believe it would be silly to settle.

I have spoken to the developer who has told me that I had better settle. Just so you all know, I made a cash offer.

I have been advised that the developer can sue me, however, this will take a few years and lots of legal costs.

I can be sued for the difference between my contract price and what they actually get for it.

What would you do?

 

[sparky23]

Hi Francesca

Just wondering whether you would like to share the details of the block, price, location, size etc. Might help with the input.

 

[Ausprop]

yes details would be interesting.

the thing is, you have committed to buy it unconditionally. the whole point of OTP is that the buyer wears the risks and benefits of changes in capital value. I can't think of any OTP block in Perth that has dropped by anywhere near this much hence am curious to hear about it

 

[lizzie]

well - from where i stand as a non-legal person - you've signed a contract to buy a product at a set price, at a set time.

the developer has fullfilled their obligation to provide you with the product and you are obligated then to pay them.

i don't see how there would be a way out for you.

a very good case as to why not to buy off the plan ... but i would be very interested if someone does have an out.

 

[casper007]

If the current purchase price is what you signed for ... then I don't see how you can get out of it. If the developer has used a legal clause to increase the price by $100k due to delays and development costs ... then you should have an opportunity of not proceeding. It sounds to me like you have bought yourself a block though... get a second opinion on the legal advice.

I'd also be interested in details

 

[Francesca C]

Hi Guys

I know its hard when I have not given you anymore details, I dont want to say anymore.. its a legal issue I am talking about, not whether or not the block is worth more or less. I know it is not worth anywhere near what I signed the contract for.

The reason it has dropped so much is because I probably paid 50k too much for it (stupidly thinking it would go up) and the market in Perth in AVERAGE areas has dropped a little.

I know that I signed it and had all good intentions.. I have had it valued and have research prices around the around using RP data and it is out by 100k

i dont usually buy off the plan, I think it is an average strategy... I planned to build a house for myself on it.

I do smalls scale developments and one of my golden rules is to always leave a cut for the next person. I dont even see how the bank are going to lend anymore money to buy these blocks anyway because the developer is charging way too much.

I do realise it is my own fault and I am not blamming the big, bad developer.. However, I have made a mistake.

Now tell me, would you guys settle?????

 

[Ausprop]

is the developer sizeable? what is your deposit?

 

[Ausprop]

yes I would settle... the aggravation and expense of the legal argument, the deposit, the ethical issues

if you really want out - take it to a lawyer and see if they can start pickign holes in it. This is where it starts to get choppy waters... and lawyers will start debating about implied acceptances and blah blah blah

 

[alexlee]

Now tell me, would you guys settle?????

What choice do you have? Just renege on the contract and dare the developer to sue you? As you said, it might tie you up for years, cost you a lot of money in legal costs, and I wonder whether the developer has legal remedies to act against your other investments.

You signed the contract, you were optimistic about the market, and the market didn't perform as you wanted. That's the risk you take when you buy off the plan.

If it was me personally, I would try to find some legal loophole that allows me to NOT settle, but legally. If I had no legal loophole, yes, I would settle. Get it behind me, take the losses, and move on.
Alex

 

[The Y-man]

Now tell me, would you guys settle?????

Given the situation, yes.... or if getting loan etc is a problem, then flip to another buyer.

I understand this sort of thing happened a bit in the Melbourne Docklands - people found valuations didn't come up to expectaitons on completion and were unable to get loans for their properties (especially since most bought on the pretense of no money down 110% loans).

Cheers,

The Y-man

 

[steveadl]

Now tell me, would you guys settle?????

Yes. As others have said, that's the risk (or perhaps gamble) you take with OTP transactions. Pretend the block was worth $100k more than what you signed for. What would you say if the developer came to you saying they want to increase the contract price by $50k?

 

[casper007]

If the intention is to build a house on it ... then settle and you'll make up the difference in the future... remember property is for the long term and generally doubles every 7-10 years.

 

[lizzie]

i think you'll have no choice but to settle - however take the contract to a good property lawyer and see if there is a cut and dried "legal" way out.

if not, if you plan to build a house for yourself on the block, and none of the other reasons for buying the place for you to live in have changed, than i would write it all down to experience and just continue on. build, enjoy and reap the capital growth in the future.

some of the most valuable lessons are the most expensive. the pain at the time doesn't let us forget - as i found out with trust structure problems!

 

[Francesca C]

It is not the market to flip, there is lots of land around the area.

I know what I should and shouldnt do and I know what morals are......... however, this is a business decision and I make all my decisions even my PPOR based on numbers.

The numbers do not stack up and I made a bad business decision. Do you guys want to fry me for it??

I approached the forum more to ask if anyone else didnt settle on an off the plan purchase and what happened?

 

[Francesca C]

Hi Lizzie

I know, I have learnt the greatest things from costly mistakes and it has only made me smarter

I have taken it to a good property lawyer already and the contract is full proof, there is no out, except not to settle.

I can be sued for the difference, so if I choose not to settle, I am aware of how much I will be up for...

Also, i cant sit on something for 7-10 years that I have to wait 5 years to make any capital growth. I think I would rather not settle, pay them the difference (if it comes to that) and move on...

 

[Raddles]

Hi there Francesca
In my capacity as a legal costs consultant I once costed a file where a party had bought off the plan and wanted to get out of the contract.
The lawyers did find a loophole that they could utilise and did argue the purchaser was entitled to be released from the contract.
After argument in the Supreme Court - it didn't go down too well with the commercial judges - who ruled against the purchaser. They didn't require specific performance of the contract as the developer had by that stage on sold to another purchaser. But they did rule that the developer was entitled to retain the deposit and as damages - any shortfall in the new purchase price obtained.
The costs were tremendous - we are talking about aprox $10K per day of the court's time plus the preparation, counsel etc - we are talking around $100 K all up.
If you don't settle - be prepared for that sort of outcome.
thanks

 

[Ausprop]

saves you the stamp duty I guess.

if you really want out, maybe try to negotiate and get out of it for less than the full $100k?

 

[alexlee]

Also, i cant sit on something for 7-10 years that I have to wait 5 years to make any capital growth. I think I would rather not settle, pay them the difference (if it comes to that) and move on...

If you're willing to pay the difference, wouldn't it make sense to settle, sell it, and then just take the loss? That way you don't have the legal issues?
Alex

 

[Francesca C]

Hi Raddles

They have a 10k depost and I would never suggest they gave it back.

I have worked out that 100k in costs and shortfall is cheaper than settlement.

I am just wondering about the other people who purchased in the same development... and how they are going to even fund the purchase.

I think the bank will tell everyone to get stuffed.

 

[alexlee]

Francesca, it's one thing to use legal loopholes, but to deliberately refuse to settle because the market has moved against you (or you didn't do enough due diligence in the first place)......... Put it this way, there is a reputation issue at stake too.
Alex