Chapter 92: Moving Out But Staying Close
I can’t believe it’s been over ten months since I last wrote. I have no idea where the time went.
After reading back on some of these old blog entries, I realize that there really is value in these memoirs. They provide a much more detailed glimpse into events of the past, certainly a more vivid rendition than I would be able to recollect based on memory alone. It’s fun to read back on these entries, and in a way I feel a small sense of reliving them.
Now, what has happened in these past ten months? Certainly there has been some significant changes, and the one that would stand out is Elaine and I moving into our own place. I think it was early last December when I started to consider whether it was time for the two of us to finally move out on our own. I was financially stable at this point, with no financial burdens, having paid off my Yaris and all, so short of just putting my money into investments, I thought maybe it was time to make a bigger purchase - an apartment. I wrestled with the idea of renting instead, but I just didn’t like the concept of paying a grand or more per month with nothing to show for it at the end. I eventually realized I was looking at this too much as a black and white situation. Even if purchasing a place and assuming a mortgage, the interest portion of the mortgage payments would essentially be the equivalent of paying rent. However, I still did prefer purchasing instead of renting.
I’m pretty much a homebody. When I’m comfortable in my surroundings, I don’t like to change. While I had entertained the idea of getting an apartment out in Richmond, my main intentions were still getting a place closer to home, and the only place that really fits the bill is King Edward village (KEV). This development was supposed to have been completed by middle of 2007, with Phase I scheduled for occupancy at around the beginning of 2007. But as was with many other real estate developments during this time, it was severely behind schedule, and even towards the end of December 2007, they were finally just getting units in Phase I completed. Phase II was still months away, and this was the building I was more interested in.
I started learning about the whole real estate business on the Real Estate Talks forum and it proved to be an invaluable resource for me to learn about all things I needed to know to get myself ready for purchasing a new apartment. Given the prices of real estate in Vancouver, I decided that we could only consider a one-bedroom apartment for the time being. I didn’t have many other requisites, but I wanted a north-facing unit with a balcony. Given the way the Phase II tower is laid out, there actually aren’t too many suites that fit this bill, perhaps only about 20 total.
When I started looking at the listings, there were none that were to my liking. There were a bunch of units available that were on the Knight Street side, facing west. From what I had read, west-facing is a bad idea because the apartment will turn into an oven with the sun shining directly in during the afternoons, especially during the summers. I looked at the MLS listings everyday, hoping a suitable unit would eventually be listed. Towards the end of December, I found an attractive listing that fit exactly what I was looking for - a one-bedroom unit on the Kingsway side with a balcony. The listed price for the assignment was approximately $306,000. After a little deliberating, I decided to make an initial offer, although I guess it was pretty much a lowball at $278,888. The realtor handling the sale told me that the price was too low for his client to entertain. After thinking it over some more, I made a second offer for $288,888, which was met with increased attention. The realtor presented the offer to his client, and they decided that if I was willing to bump the offer up slightly, we may be able to reach a deal. I made my third and final offer for $292,000… and they accepted it. However, of course there were still conditions that needed to be satisfied, such as proving that I had enough to cover the initial amounts due immediately, and was financially sound enough to assume a mortgage for the remaining balance owed to the developer upon completion.
I’ll briefly explain how an assignment works. Purchasing an assignment just means you’re taking over the pre-sale contract from the original buyer. It doesn’t mean you actually own the listed apartment yet. When the unit is completed, you still need to close the deal based on the contract with the developer.
The original purchase price for my unit back in 2005 was $222,900. I paid $292,000 for the assignment. The increase in price is the “lift”, which comes to $69,100. This amount goes directly to the original owners of the unit, due in full immediately. I also had to come up with another $22,290, which was to replace their original 10% deposit. So all in all, I needed to come up with $91,390 up front, of which I gratefully had my parents’ help with some of that. The remaining amount I would owe upon completion is $200,610, which would be 90% of the original price of $222,900.
There were a few reasons the original owners were willing to let it go for $292,000, which is almost $14,000 off their originally listed price. First of all, the original owners had actually bought three presale units, and all of them had identical layouts, except two of them were west-facing and had a layout that was a complete mirror of the third one, which is the unit I took off their hands. Since they were holding on to so many suites, they may have been more willing to let the first one go. As of now, they still have one unit that remains listed and unsold. The second reason is that I ended up negotiating the deal myself, without bringing in a realtor of my own. I didn’t really intend on doing this, but that’s how it worked out. If I had brought in my own agent, they probably wouldn’t have accepted an offer lower than $297,000, and I’ll explain why.
In BC, the typical commission on a real estate transaction is 7% of the first $100,000 and 2.5% on the remainder. So on a $300,000 house, the total commission would be $12000. Generally, this would be split between the agents of the seller and the buyer. If the buyer does not bring in his own agent, then the seller’s agent does not need to split the $12000 commission. However, if there are not many offers made to the seller, and the only offer is lower than what the seller is willing to let it go at, the seller’s agent can make a deal with the seller to rebate back the portion of the commission that otherwise would have been paid to the buyer’s agent. For example, if the lowest the seller was willing to let the unit go at was $300,000, he would receive $288,000 and the agent would receive $12000. But if the lowest offer is only $295,000, the agent could agree to only take $7000 commission, which ends up leaving the owner with the same $288,000. The agent also ends up with the same amount that he would have if a buyer’s agent was brought in. So the real winner is the buyer, who pays $5000 less, the amount that otherwise would have gone to his agent if he had hired one.
Of course, doing things yourself does present some risk, in that you would be much less familiar with all the contractual terms, conditions and options. If everything is approached with caution and due dilligence, it may well be worth it. In my case, it worked out really well, but there was one detail that I missed, and it could have cost me severely.
I ended up finalizing the deal on the assignment in February, and then the waiting game was on for the unit to be completed, which ended up being several months later. There was a period of brief anxiety when several other developments in the lower mainland went into receivership, and some of the owners at KEV were concerned of the possibility of it happening to us as well. For example, the Sophia just off of Kingsway down near 12th Avenue was one such development. Construction was already 85% complete, but due to the delays and skyrocketing construction costs, the developer determined they could not afford to finish the remaining 15%. At that point, construction was halted, and the owners were hung out to dry. They determined it would cost almost $10M more to finish construction, and to raise the money, the owners would have to pay a lot more for their units than originally agreed to on their presale contracts. Even now, I don’t know what the status of this is, but for several people, the ones that bought units there on assignment, the situation is much, much worse.
There were stories of two people that had bought assignments. The difference is one of them had the lift and deposit payments held in trust, contingent on the unit actually being completed and the contract being executed. The other paid the lift and deposit up-front direct to the seller. Now, despite the fact that he may no longer be able to execute the contract he bought, he is still out his lift and deposit payments. This is what could have happened to me if KEV went into receivership, and this was one detail that I didn’t pay enough attention to. I guess when I purchased the assignment, I didn’t consider this to be a possibility. Fortunately, the group behind the development of KEV is the Acquilini family, who owns the Vancouver Canucks, and they have a much longer history than the developers that couldn’t complete. Also for their reputation, they probably couldn’t afford to abandon construction on KEV, although they did all they could to reduce costs.
We had our first walkthrough - the first time we had seen what our future home looks like - in early May, and there were still a lot of deficiencies, such as doors that hadn’t been put in, and electrical outlets that hadn’t been completed. However, the view was spectacular, and we have a 180° view of everything to the north of Kingsway, including downtown and the North Shore mountains.
We took possession of the unit at the end of May, and even then the unit had not been cleaned whatsoever. You’d think when you take possession of a brand new apartment that it would be cleaned up, but there was still construction dust everywhere. From that point on, we slowly made the 596 sqft space into a home. This involved many hours of cleaning, many hours of shopping for just the right pieces of furniture, many hours of getting everything into place, and many hours of setting everything up. Not everything worked out exactly as planned, but all in all, I’m pretty happy with the end result. We made the most out of our little apartment.
After about two months of slowly getting things ready, we finally officially moved in on July 26th.
