New condo comes with market value guarantee

If 20,000 listings, near-zero sales and word-on-the-street consensus isn’t enough to convince you that Vancouver real estate is in the thralls of meltdown, maybe this will turn your opinion: A local developer is now offering a “market value guarantee” to all buyers of the “European-inspired” Surrey condo, Morgan Crossing.

Details of this so-called guarantee are contained in a comic-book style speech bubble in the Morgan Crossing ad. Here’s how it reads:

Morgan Crossing. A community, so different, so right that its value is here to stay. And to prove it, Larco Investments Ltd, the same people who brought you The Village at Park Royal, will confidently guarantee the market value of your home by up to 10%*. So if there are any downward value fluctuations, you’ve covered by a healthy margin.

Even if you read the fine print after the asterisk, it’s difficult to say how much protection this actually provides. I’d ask the marketer for the specifics, but I suspect an email from me would go unanswered. (If you have a copy of the guarantee details, please feel free to send them my way.) Update: Additional information about the guarantee has been provided by the marketer and can be read in the comments.

As for 10% being a “healthy margin” against depreciation, I guess it depends on your definition of healthy. In China, Olympic officials define the air over Beijing as “good.” Meanwhile, Ozzie Jurock hints at the possibility of a 17% drop based on historical patterns.

But really, who cares about percentages at this stage of the game? The party’s over. Those who bought to make a quick buck are going to lose, and lose big. The Vancouver real estate elevator, once ascending to such great heights, is now on the verge of a furious free-fall.

Have a good day.

24 Responses to “New condo comes with market value guarantee”

  1. Rick Says:

    Developers can’t even guarantee condos won’t leak. How can they be trusted with ensuring a guarantee against a drop in market value? This verges on criminal.

  2. bangkok condo Says:

    thanks for your information, very website

  3. Carioca Canuck Says:

    Considering that almost every developer folds up their tent when the excrement impacts the whirling blades (see leaky condos for reference) I’d say that this “guarantee” is utterly worthless…..unless they have $30K cash per unit in a bank somewhere, held under trust conditions that they cannot access.

  4. jesse Says:

    10%? Read the fine print. I doubt the company has such loss reserves in escrow. The fact this ad even exists shows the developers are sweating. Limiting the loss to 10% will be laughable and I’m glad the ad has been captured for historical reference.

  5. Bubble Lad Says:

    There was a thread going on over at Condo Info about the liability of the builders, but I’m still not convinced they can’t just shut the storefront sales office take the red eye out of Vancouver the instant they see things going south.

    Maybe that’s what scare me: nobody seems to know for sure.

    I wonder which “European style” RE crash they’re going to model themselves on – Great Britain…Spain…

    I’ll try stirring the pot at Condo Info one more time…

  6. alan Says:

    Something about the relationship between owners and developers is ass-backwards, no?

    If the developer cannot finish the job, why don’t the owners fire them and hire a new developer who can complete the work?

  7. condohype Says:

    Anyone from Maverick or Larco Investments willing to put forward the fine print? I’d be happy to publish it, along with any other information about the guarantee program. Cheers.

  8. Larry Yatkowsky Says:

    Does the pile ever get smaller?

  9. chris Says:

    The conditions don’t seem to be published anywhere on their website (surprise). All I get is

    *The Market value of your home will be determined by an accredited real estate appraiser upon completion and will be guaranteed by up to 10% of your purchase price. This is a limited offer and subject to conditions.

    Who does the accrediting, I wonder?

  10. Greenhorn Says:

    Seems pretty straight forward to me. The developer is asking you to buy a presale and is also advising you that prices may fall. They will also cover the first 10% of that drop. You buy the unit and when it is completed, you get it appraised before you buy it. If the price has fallen anywhere from 1 to 10%, they will deduct this amount from the purchase price. Way to scare the market Larco.

  11. GhostRider Says:

    Keep them coming CondoHype… Always the BEST laugh of the week… Thankx n’ Cheers!

  12. exx Says:

    I heard Morgan Crossing on News1130 3x in 30 minutes on the drive to work this morning. One of those times they actually mentioned the guarantee(subject to conditions).

    Subject to what conditions? The way I see it, this is like offering a 10% discount, except the developer has a chance to get away with the discount only being 5% or even less depending on the pace of the decline and what their ‘conditions’ are. I’m assuming part of the condition is a timeframe (6 months? 1 year?).

    Either way they suck in a few more greater fools who forgot to put their thinking cap on and question WHY a developer is guaranteeing house values when “real estate never goes down(tm)”

  13. Bob Says:

    Well, on the upside… the development actually looks like a good one, doesn’t it?

  14. jesse Says:

    alan: “If the developer cannot finish the job, why don’t the owners fire them and hire a new developer who can complete the work?”

    Because the developer owns the land title.

  15. condohype Says:

    Bob, I’m not familiar with the Morgan Crossing area but in general I’m a fan of mixing commercial/retail and residential development.

  16. chico Says:

    Is the guarantee for 10% of the purchase price? Or is the developer guaranteeing the first 10% of your ‘investment’ saying that the price won’t fall more than 90%?

    You really can’t tell from that ad.

    I’d never see these funny ads if it weren’t for Condohype. Thanks for the laughs.

    Chico

  17. dan Says:

    I called them up – they said it would be based on city hall property appraisal upon completion. I don’t quite know how the appraisal process works exactly but it is probably affected a lot by comparable sales on the MLS system. So the appraisal may not actually get marked down until the first sale after completion (not sure how assignments fit into equation here), which means the market price won’t change from the initial presale at the time of completion.

    But even if the guarantee is legitimate, this is effectively a 10% mark down on prices.
    Developer gets kudos for creativity. You showed us 20 year strata fees, low rate mortgages, free TV’s, etc.. – All these non sales price sweeteners don’t go into the published prices, maybe a few more months before the actual list prices get pushed…

  18. Dave Says:

    Larco has been around for a long time and they are a credible developer. The risk of them not carrying through on the deal should prices drop is low.

  19. condohype Says:

    The project marketer has provided me with additional information about Morgan Crossing’s value guarantee program:

    No sooner than 90 prior to completion of the purchased condo, an accredited real estate appraiser — currently defined as Burgess, Cawley, Sullivan and Associates — will provide a market value assessment. If the market value is less than the pre-sale purchase price the buyer committed to, the purchase price will be reduced by the difference, up to a maximum price reduction of 10% of the purchase price.

    In other words, if you commit to buy today at $300,000 and upon the completion the appraiser assesses the market value of the home at $270,000 — a 10% drop — your purchase price will be reduced to $270,000.

    According to the developer, this incentive demonstrates their overall confidence in the value of Morgan Crossing homes.

  20. VancouverGuy Says:

    That’s actually pretty nifty. Generally, when you enter into a presale the developer has a put at the value you paid, but in this case they have a put with 10% variance in it.

    I agree that the Larco guys are pretty smart… this is probably a good way to guarantee they will presale the buildings, whereas just putting in a 10% discount might not do it.

  21. condohype Says:

    I agree, VancouverGuy. From a marketing perspective, I see the developer getting better results out of this than a straight 10% price cut.

    Whether these condos, or any condos out there, represent good value is another question. Until the price-to-rent ratio falls in line with historical norms, I can’t see myself becoming a buyer anywhere in this market.

  22. Eugene Says:

    By december 2009 market price on condos in Vancouver will go down by 20%.

  23. Drachen Says:

    Condohype

    “According to the developer, this incentive demonstrates their overall confidence in the value of Morgan Crossing homes.”

    Quite the opposite, if they REALLY had confidence in the value of their homes they’d guarantee 100% price protection for 5 years or something.

    10% for a year or two (when is it due to complete?) is as some people have pointed out at worst a 10% off sale from their perspective, many developers are forced into cutting prices by that much anyhow.

    Anyhow, smart way to sort out the last of the greatest fools.

  24. Atom Says:

    SO this basically means they’ve taken a condo that would be worth 285,000 in today’s market and increased it to 300,000, while offering a 10% discount.

    Smart cookies! Makes it harder to negotiate if you’re a buyer, as they can always pull the (Well, it will be 10% less for you already)

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