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Sell out or hold out?

With real estate prices soaring and undeveloped land becoming scarce in many cities and towns across the country, property has become coveted commodity. That's because developers need land to build on, so these days everything from older residential neighborhoods and run-down tenements to worn-out industrial space and farmland is under siege.

What happens if a developer makes a play in your neighbourhood? Should you sell right away or hold out for a better deal? And what happens if you don't want to sell at all -- can a developer force you out?

The big picture
One of the challenges landowners face is that developers operate in stealth mode, so many homeowners often don't even know a land assembly is underway, says Brett Tkatch, a real estate lawyer at Blaney McMurtry LLP in Toronto.

Developers often use shell companies and in-trust arrangements when making offers and acquiring parcels of property. "If you have that knowledge, you're in a better position (to negotiate). The kicker is if you can find out."

Lawyers say the first people to sign on don't always get the best price for their properties. By the same token, there's a danger in being the holdout, the lone house surrounded by towering high rises. Barnet Kussner, a property lawyer at WeirFoulds LLP in Toronto, says, "Most sophisticated developers seem to find ways to avoid the lone-holdout scenario. One classic example is using a variety of different nominee companies to buy up various properties so that they appear to be one-off acquisitions rather than a land assembly."

No blank cheques
John Goundrey, a real estate partner at Alexander Holborn Beaudin & Lang LLP, a Vancouver law firm, says when it comes to big projects, developers will do whatever they can to close the deal. That doesn't mean they'll hand you a blank cheque for your property. "The intent is to offer something as close to market value as possible. I don't think a developer would consider there to be much point in going with a below-market offer."

Any offer will come with conditions, though, and it's those conditions that can come back to haunt you. For example, Goundrey says, a developer might agree to buy a group of houses on condition that he is able to purchase all of them and acquire the necessary approvals to build the structure he has in mind.

Tkatch cautions sellers against thinking it's a done deal too soon and arranging to buy a new house right away. "Until you have the money in the bank, don't count on it." He says it's nothing for developers to tie up land by putting down $20,000 deposit and then walking away from it later if things don't work out.

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-- Posted: May 16, 2007
See Also
Have you had your mortgage check-up?
Sell out or hold out?
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