How would you react if your homebuilder said there was going to be a 30 per cent price hike on a pre-construction home you’d already agreed to buy and, if you didn’t like the idea, you could have your deposit back?
It doesn’t appear to be much of a problem in Ottawa, but it’s happened elsewhere in the province and the Ontario government is looking at ensuring the practice is controlled everywhere.
Almost two years after Premier Doug Ford promised to end the “unacceptable” hikes, the government has launched a consultation process on consumer protections related to new freehold home purchase agreements and price escalations.
Consumers and industry professionals are welcome to provide feedback on proposed new rules, share their experiences with these kinds of pre-construction price escalations, and offer ideas on fixing the problem. Feedback will help the Ministry of Public and Business Service Delivery determine whether the proposals should be implemented.
Price caps are one measure being considered. They would limit the amount a builder can raise the price of a home with an existing purchase agreement as well as how much the builder could sell the home for after a previous agreement is cancelled.
That would presumably prevent situations like the one encountered by a buyer in Stayner, Ont., northwest of Toronto. She bought a home for $605,000 in 2019 but was told by the builder last year that she’d have to pay an additional $175,000 to cover increased expenses resulting from supply chain issues and higher labour and materials costs linked to the pandemic. Her option: cancel the deal and get her deposit back.
Along with capping a price hike on a pre-construction home like that and others that have been reported, the government is looking at establishing a mandatory cooling-off period for buyers of new freehold homes and instituting a mandatory legal review so buyers have a thorough understanding of what they are signing.
A matter of logistics
“The principles are generally supported across (our) membership because they have reputations for being professionals and wanting to deal fairly and equitably with their customers,” says Jason Burggraaf, executive director of the Greater Ottawa Home Builders’ Association.
“It’s just a question of the logistics and the details of how those things are executed. How do you cap an escalation price appropriately when you can’t control price escalation for materials or for labour? Is it in relation to what the (Consumer Price Index) number is as opposed to something fixed or maybe it’s something that floats relative to inflation?”
Saying that situations like the one in Stayner “aren’t something we’ve seen in Ottawa,” Burggraaf explains that supply chain problems and soaring costs over the past three years have hit the local homebuilding industry. Supply chain disruptions, for example, can impede the progress of a home’s construction and have forced some builders to move from a strictly just-in-time material ordering strategy to also keeping an inventory on hand, which ties up their capital.
He says some local builders have included material cost escalation clauses in their contracts, especially before acute material shortages started to lessen a few months ago. Should extreme price fluctuations return, some builders may reinsert the clause, Burggraaf adds.
Builders may also include a clause that ensures they can raise the price of a home if development or other charges imposed by a municipality or the province increase between the time of sale and when the owner takes possession.
Some Ottawa buyers frustrated
While a price hike on a pre-construction home may not be a general problem here, a small group of Ottawa homebuyers have found themselves caught between a rock and a hard place.
Between 2017 and 2019, they purchased townhomes at Fresh Towns, a development on Baseline Road by Toronto’s Greatwise Developments Corporation. The homes were scheduled to be completed by early 2020 but according to five buyers the homes still aren’t ready and construction hasn’t even begun on some of them.
Greatwise blames the pandemic for the delays.
The buyers say they’ve been offered a refund of their deposits, but they’ve refused. Some believe Greatwise wants to resell the homes at a higher price, a suspicion the company has refuted.
Sticking to their word
Like its competitors, eQ Homes, which builds a mix of housing types across the city and in outlying areas, has been hit by rising prices. Even so, escalating a post-sale price “simply isn’t something we do,” says senior vice-president Josh Kardish. “We always honour the price we sold the home at. It is what it is, but we expect the buyer to close. Any good homebuilder should know their costs before they sell a home.”
While sticking with the selling price has cost eQ some money, Kardish says price adjustments on new sales over the past couple of years means the company has caught up again.
He says the situation can be different in southern Ontario, where the building approval process is even slower than in Ottawa. As a result, some builders may have gone to market too soon and wound up with cost increases exacerbated by approval delays.
“They may have gotten burned a little bit harder and maybe that’s why the government is intervening.”
“It’s not really an Ottawa issue.”
You can comment on the province’s cost escalation and related proposals until Aug. 23.
