Canada

Another Canadian Real Estate Developer Is Asking Buyers For More Cash For Lumber

Another Canadian real estate developer is asking buyers to cover soaring material costs. Delpark Homes, a Greater Toronto real estate developer, is the latest to ask buyers for a top-up. Recently soaring material costs, such as lumber, have crushed homebuilding margins.

Since new homes are often bought years ago, an unexpected rise in costs can threaten a project. If material costs rise higher than the amount collected to build it, the developer has three choices — absorb the costs, cancel the project, or ask for more money. This developer is taking a swing at more money, like a few other developers have. More and more developers will likely be forced to follow in the near-term.

Another Real Estate Developer Is Asking Buyers To Pony Up More Cash For Lumber

Another Greater Toronto home builder is asking buyers for some gas lumber money. In a letter sent to existing buyers, they explain lumber costs have increased by 300%. Also mentioned is an additional 15% increase in other material costs.

 “We were willing to absorb the costs at the time we signed the amendments, but this is too big of a hit to absorb,” wrote the developer. 

Source: Letter sent to existing buyers at one project this week.

Lumber Prices Killed Home Builder Margins

Typically developers plan a margin that allows for a rise in material costs, as well as a little profit. The industry standard is about 18%, which provides a decent cushion in normal times. In an environment where lumber increases by 200% over a year, and other materials rise 15%? Not so much. That’s an unpredictable rise that pretty much no one could have forecast.

Many homebuilders would have to pay out of pocket to build a home, if they didn’t ask for cash. That’s if they can even obtain the financing without deep reserves. Most would have to go out of business pretty quickly if that happened. Instead, they ask homebuyers for a top-up on the expenses. It’s usually in the fine print of the pre-sale contract that people rarely read. 

In this particular case, the buyer is being asked to pay an extra $40,000 in additional fees. That’s the cost of an actual home in parts of the United States. 

Lumber Squeeze Has The Industry Suggesting People Delay Lumber Purchases

In case you missed it, lumber is one of the most random stories this year. Prices have increased over 200%, adding about $40,000 to the cost of building a home at the current level. It’s gotten to the point where a lumber exec even told people to put off discretionary projects. He, amongst others, is forecasting lumber prices will correct substantially by year-end.

Lumber prices are currently crashing, but are still much higher than a year ago. A lot higher. Prices are expected to fall even further, but it’ll take a while before they actually start to return to normal levels. In the meantime, new homebuyers might want to stash away a little extra cash, in case you get the dreaded letter.

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6 Comments

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  • Reply
    Darren 4 days ago

    Whaa whaa! So if the lumber prices crash to well below what they were when you signed your agreement will the builder give you a refund? doubt it never seen that before. There margins in this housing market (since 2017) are quite good. In Toronto they get the land at significantly cheaper prices then an individual buying a single lot would pay. How can they build a 1400sq.ft bungalow in St. Thomas, ON for 325K in 2020 and the same house would be $1.1M in GTA? Is the land 800K more or are the builders selling houses at the market price and pocketing all the margins? Dont feel sorry for builders.

  • Reply
    V 4 days ago

    Oh! But why don’t they refund money when prices drop and the house is not valued st the purchase price they paid. Greedy builders can’t have it both ways. Ever hear about honouring a contract you stupid builders that expect the buyers to honour the contract every time. Maybe the builders chose the wrong business. A contract is a contract, if they don’t understand that maybe they should find a new profession. Suck it up, like you expect the buyers to do when property prices crash like in 2017. Clowns!

    • Reply
      Julian 3 days ago

      Total agree. You only get to cry foul if you provided your customers the same recourse in 2017. If I was a buy I’d check my contract closely and if allowed I gauge my decisions on how the builder behaved in 2017.

    • Reply
      M. Patel 3 days ago

      How about the builders were increasing price within hours after seeing a big rush of people outside their office for booking?What was the reason for increase?

  • Reply
    Marco Von Marcovich 4 days ago

    “In this particular case, the buyer is being asked to pay an extra $40,000 in additional fees. That’s the cost of an actual home in parts of the United States. ”

    This type of writing here is so bad and really starting to tank the quality of articles and makes it look like a joke. Why insert this BS line? If you actually do the math 40k CAD is 32.8k USD. Please go show me actual real estate in the US where you can buy a home for 32.8k that isn’t an old garden shed shack in a dead economy red state. I won’t hold my breathe.

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