Condo and office towers line Vancouver's downtown skyline. As the condo market continues to struggle from sluggish sales, builders are finding creative solutions.DARRYL DYCK/The Canadian Press
Some developers are offering buyers of new condos steep discounts, provided they sign confidentiality clauses, as the sector continues to struggle with sluggish sales and mounting inventory.
Anthony Scilipoti, president and chief executive officer of Veritas Investment Research, a Toronto-based equity research firm, said that during a secret shopper exercise in Vancouver earlier this year, he was offered this kind of a discount on a new condo. Subject to signing a non-disclosure agreement, he was promised savings of around $700 a square foot.
In real estate, the prices of recently sold, similar and nearby homes are the main tool used to estimate a property’s current value. So, large discounts on certain units in a condo complex could drag down the value of other units as well. Clauses that keep the large discounts confidential limit the risk of that knock-on effect.
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In Oakville, Ont., a new condo unit recently sold for $75,000 less than its original price with a contract that included a non-disclosure clause, said Sundeep Bahl, a real estate agent at Re/Max Plus City Team Inc., the brokerage that represented the buyer in the transaction.
“Across the board, a lot of the developers are doing this,” Mr. Bahl said, speaking about the Greater Toronto Area.
The Oakville unit he mentioned is in the Greenwich Condos complex built by Branthaven Homes, a Southern Ontario developer.
The transaction for that property didn’t close under the original terms of sale, Branthaven Homes president Steve Stipsits told The Globe and Mail in an e-mail.
“There are distinct circumstances where we work closely with individual purchasers to provide specific accommodations. Confidentiality agreements are a standard practice used solely to protect the privacy of the parties involved in these unique accommodations,” he wrote.
(Mr. Bahl also said Branthaven is refusing to pay his brokerage the full commission for the sale. Mr. Stipsits said his company is abiding by the terms of the contract and is “100 per cent confident in our contractual position.”)
Leor Margulies, a real estate lawyer with Robins Appleby LLP in Toronto, said he’s seen developers ask for NDAs for unusual deals. For example, some builders might offer steep discounts or a mortgage to struggling buyers to close a sale.
Developers are generally willing to make these deals when they have paid off their construction mortgage and don’t have to worry about repaying creditors, he said.
In this slow market, builders are often ready to explore creative solutions to avoid condo buyers defaulting on units or to reduce their inventory of unsold units, Mr. Margulies added.
But Mr. Scilipoti said buyers should beware of the practice of including confidentiality clauses, because it means that listing prices might not reflect what homes are actually selling for.
Veritas has been conducting secret-shopper research in the condo market since 2012 to provide investors with on-the-ground intelligence about the sector, he said. Representatives from the firm typically pose as prospective condo buyers and either come close to signing a purchase agreement but back out before signing, or sign a contract but return the condo within the legislated cooling-off period.
Veritas usually runs two or three secret shops a year, though there were years when the company did not engage in such research because market conditions remained steady, Mr. Scilipoti said.
This year is the first time that the firm has come across an offer to sign a confidentiality clause in exchange for a discount, he said.
A buyer who breaches a confidentiality clause risks being sued by the developer, Mr. Margulies said.
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In practice, the costs of litigation are so high that both individual buyers and builders are usually leery of initiating lawsuits except in cases where large amounts of money are at stake, said David Taub, a litigation lawyer at Robins Appleby.
But NDAs still work as a deterrent, he said.
For homes listed on the Multiple Listing Service system, real estate agents must indicate what properties sold for. In Toronto and Vancouver, consumers can see those prices on the Realtor.ca website. And in Toronto, buyers can also search MLS sold prices on other real estate companies’ websites.
Sold prices can also be found through land registries and systems that assess property taxes.
But sellers and real estate agents don’t have to list homes on the MLS, and can opt for private listings instead.
In a report for clients about this year’s secret-shopping research, Veritas said prospective buyers should also be aware that market listings for new condo buildings do not always reflect the full inventory of units available for sale.
“What we have now is a market obscured by shadow prices and a shadow inventory,” the report warned.
