Off the Plan Purchase (gone wrong)

[Raddles]

Hi there Francesca
if you have determined that you will be unable to settle - due to an inability to obtain the finance in the circumstances - I agree with with Alex - see if you can settle the matter without going to court - by the way the $100K in costs were just the winner's costs - in that case the losing party would have also had to pay their own lawyer - so it would more likely have been closer to $200K in costs, plus the deposit, plus the shortfall.
thanks

 

[Francesca C]

Alexlee

If you want to think badly of me asking advice, that is ok too...

This is hardly a moral act, it is business and I did not start this post for you to judge me.


Raddles

I spoke to the developer about this 6 months ago because I felt the same way as I do now, and I got a very hard response. I am even happy to pay the difference now to them but as they have been sold to everyone so high above market price, I think they are getting this from everyone.

 

[evand]

I would be pricing in the block and the house build. Calculate the gross yield and then turn it into an IP.

If the yield is real bad i would pay for the block and cop it sweet. You don't know what the litigation will turn into?

Its that unknown that would worry me. Unless, of course the developer has actually told you that you're only up for the difference between your settlement price and his eventual sale price.

Its a tricky one tho. I'd probably just buy it. The sun will still come up tomorrow.

By the way. You shouldn't separate business and morals.

 

[Francesca C]

LOL wow you guys are harsh huh. I didn't say I had no morals.

Just wanted to simply know, if anyone had experienced the same thing before and what they did.

Thanks for all the feedback, will take it all on board.

 

[ianvestor]

This is hardly a moral act, it is business and I did not start this post for you to judge me.

Even businesses have to think about their reputations; Having a bad reputation is bad for business.

I disagree that it's not a moral issue, if you are contemplating reneging on a legal contract.

 

[CairnsInvestor]

Yes, this forum is tough but fair & filled with differences of opinion but with honesty. There is a lot of experience from certain individuals on this forum.

On a side note, the purchase price on this block of land must have been around $500,000 to lose $100,000 (20% drop?). Sounds strange that only a $10,000 deposit was required to secure what I would think would be a $500,000 land price; otherwise how could someone lose $100,000 & think that it was worth losing that huge amount of money if the block was worth only $300,000? Most land developers I seen want 10% deposits.

 

[want2bewealthy]

When purchasing property, it is wise to add your own clauses next to your signature such as
"subject to finance and or independant evaluation" etc etc but everyone makes mistakes from time to time,

 

[Francesca C]

Agree there are lots of opinions, however, it is always good to give a constructive one without being accusing. I do not lie, steal or cheat anyone and I have been nothing but upfront and honest. Anyway, enough about me.

Yes, I take risk being in real estate, so do developers and the golden rule I have always learnt is to leave enough cut for everyone so that you dont burn yourself. Whenever I split up land (small scale) I always make sure I calculate it about 20k plus under value so that I know I can sell and people can easily settle.

If people cant easily settle, then I will be left with land and holding costs myself. That is the way I work anyway. Overpricing/greed is not a good strategy.

Once again, I have not blamed the developer and understand their position.

The purchase price of the block was $425k... there is no standard for the depost you put on a off the plan purchase... a friend of mine put $2k deposit on a development. I think it varies alot.

 

[alexlee]

Francesca, you do what you want, but if you're looking for moral support for reneging on a contract when you don't have a legal loophole, I don't think you'll find any. It's not that I'm moral (I'm not, and don't want any), I'm just concerned about legal liability.
Alex

 

[Francesca C]

Alexlee

Yes, I understand and I do realise I have to work out the cost of the consequences and weigh it all up.

I have learnt a very good lesson.

 

[MickInvestor]

And in this case the shortfall sounds like around $100k. Also consider that the cost that a court awards are generally 60% of the solicitor/client costs. Therefore if the costs awarded were $100k then the purchasers legal costs would have been approximately $170,000. Therefore if you add the shortfall, plus the vendors costs plus your legal costs you are looking at $370,000!

I would seriously doubt though that a solicitor would advise you to go all the way to hearing if you had no case at all and his/her advice would be to settle.

Your best option here IMO is to make an offer of say $30k to let the contract fall over. Make sure you get a full discharge and release from the contract in writing too.

Finally, get some independent legal advice asap.

 

[Francesca C]

That's really good advice Mick. I think I will be taking that course of action.

I will write to them this week.

 

[sparky23]

Hi Francesca

Are you able to say what size the block is and how many properties will fit the block? If duplex is allowable can you not still make it worthwhile?

 

[handyandy]

I am with Mick here.

I think it is very important that you keep control of the situation.

A compromise is obviously a very good way to allow you to walk from the deal with full knowledge as to the cost to you. Remember this may end up being the difference between your agreed price and the current market price which you say is $100k. Don't just jump on the $30k and expect the developer to roll over as you have already mentioned that its more like $100k and he will be aware of this difference.

The alternative is that you do not honour the contract the developer sells the block at any price he can, which may be far less than you would wish or want, take you to court with all the associated cost also against you. You would then be out of pocket way more than the assessed difference between the contract price and the current market val.

Just as an aside.

I was recently imnvolved in a court case where a company we used to work with was sued and we were named as a secondary party. The main company conducted the case and we only engaged a solicitor to ensure that we were represented. In the end the case was dismissed on the bases of insufficient grounds but this still cost me $8k and I assume the company spent much more as they engaged a silk. The suit was only for $30k which I suspect between us we exceeded just in legal expenses.

Bottom line is ones we were ingaged in this course of action there was no way back as the legal expenses were already gone. As I said OUT OF CONTROL

You must stay in control

Cheers

 

[Jimmyjamjars]

Fran,
I can understand your plight and feel for you. I know it probably feels, from some of the replies you've received so far, that you were being attacked, but, trust me, they are just giving you advice in your best interests. This is what I love best about the good ship SS, experience in all things IP is bulging at the seams. When people like Handyandy give advice, it is coming from a very knowledgeable base. Weigh up everything, take on board what you feel is right and go with it, but at the end of the day, the best outcome may still cost you SHORT term. Long term, you will be OK, and everyone's health is still intact.
As a sidenote, read a book called "Don't sweat the small stuff, and its all small stuff".

Good luck,

Jim

 

[Francesca C]

Hi Sparky

I have considered building two townhouses on it and it still doesnt add up esp if you include the building times, in W.A. it takes forever to build something and i mean FOREVER

Established properties are selling for 2/3 of the land price and building costs are through the roof.

Hi Handyandy

Thanks so much for the advice, I will approach the developer.. I already did four months ago however, this time I will make it clear and see if they will come to a compromise, win win situation for both.

Hi Jimmyjamjars

Thanks for your words, I did feel a little attacked. It got more on the subject of my personality than the black/white legal issue.

I do appreciate harsh and truthful opinions, you cant always have people tell you what you want to hear. Otherwise, how will I learn and grow. It's a harsh world out there and it's not what happens to me but how I deal with it.

 

[topcropper]

You've just stuffed up. You thought you could make a profit, got it all wrong and you will make a loss. Tough, but you knew what you were doing. What if you made a huge profit, then the developer pulled out???

Plenty of farmers will lose their farms this year because they sold wheat at $200 a tonne. The price went up to $400. They couldn't deliver because of the drought, and they had to make up the difference. Tough luck. They knew what they were doing too. They lost their farms.


To me, if you get out of this, you are being a cheat. You are screwing the developer. I would pay up and put it behind me.

I can't see how you could get out. You signed a contract didn't you? Trying to get out will only cost you more I would think.

 

[asdf]

Hi Fran, realise you're looking for answers here on ss but unfortunately as you can see after 3 or 4 pages of replies, no one can provide you with first hand experience as I would imagine the purchasers who came in late buying OTP in WA at the peak wouldn't be seasoned informed investors. I make that comment without disrespecting yourself or investing style.

As for use of lawyers when it comes to litigation, my advice will be to stay away from court. Once it gets going, lawyers always have this tendency to overcharge and complicate matters when there is absolutely no need to. KISS principles are not taught in law school. Their analytical minds work overtime, they love the complicated issues, working angles as this is what excites and provides their thrills. Not the mundane conveyancing and family law stuff. What they forget is us clients continue to pay $500-$800 an hour while they ponder away and write exuberant advices and file notes. And lets hope you never have to brief a silk...

 

[MickInvestor]

Hi Fran, realise you're looking for answers here on ss but unfortunately as you can see after 3 or 4 pages of replies, no one can provide you with first hand experience as I would imagine the purchasers who came in late buying OTP in WA at the peak wouldn't be seasoned informed investors. I make that comment without disrespecting yourself or investing style.

As for use of lawyers when it comes to litigation, my advice will be to stay away from court. Once it gets going, lawyers always have this tendency to overcharge and complicate matters when there is absolutely no need to. KISS principles are not taught in law school. Their analytical minds work overtime, they love the complicated issues, working angles as this is what excites and provides their thrills. Not the mundane conveyancing and family law stuff. What they forget is us clients continue to pay $500-$800 an hour while they ponder away and write exuberant advices and file notes. And lets hope you never have to brief a silk...

Thats a bit of a generalisation mate. Not ALL lawyers are like that

 

[Francesca C]

You are screwing the developer.

I can see the headline now "Developer gets screwed"