Don’t Get Scammed By Real Estate Developers

Does this sound familiar: a great new development billboard is posted in a ‘hot’ area of town, the site has been cleared for construction and ‘units are pre-selling fast’.  All that’s required from you is putting down 5% of the total purchase price as a cash deposit with the expectation that construction will be complete in two years or less (on average).

What many investors don’t realize however is that often the development deposit offering is simply a ‘taster’ to determine if there’s a market for the development in the first place.  Basically it amounts to a market survey on demand for developments in that location from investors.  That’s great for the developer, but what happens if they decide not to proceed with the project?

Here’s a few tips:

1) Read the fine print:  Be sure you fully understand the refund policy on any deposits you put down.

2) Consult a lawyer: Spending a couple of hundred dollars to find out what’s legally required of you and the deposit terms is well worth it.

3) Research the developer thoroughly:  Many developers use shell corporations that differ from project to project.  Make sure you research the person behind the development company and not just the company itself!

Stephanie from Victoria Real Estate notes: “There’s no need to find out the hard way what your rights and obligations are with pre-purchases and deposits on undeveloped projects.  Do your due diligence up front and save yourself untold grief later.”  Good advice indeed.