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The Seller Knows Less

The Seller Knows Less

Update: 2021-05-26
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On today’s show we’re talking about the seller who knows very little about their own property.


It makes sense, the seller of a property had no reason to know about the development potential of their property. They’re an owner. All they do is live in a house on a property.


This week I was involved in a dialog with a seller who was offering their property at a good price. The purchase made sense. That is, it made sense until I was able to check the government regulations that would come into play.


In this particular location, the minimum lot size was larger than the current property. That meant that any changes to the existing structure on the property would require a zoning variance. The existing structure is in derelict condition and is not worth salvaging, hence the good purchase price.


But further examination found that the property is located across the street from an environmentally protected zone. That was the trigger to go and investigate whether the conservation authority over the environmentally protected zone also had jurisdiction over what could be built on this property which is outside the environmentally protected zone.


Two minutes of search with the address showed very clearly that the property was on the edge of a flood zone where 1/4 of the property was fully within the flood zone. The remaining 80% of the property was within the regulation limit of the conservation authority. The regulation limit of the conservation authority extends another 90 feet beyond the edge of the flood zone and the environmentally protected zone.


So what does this mean?


It means that permission would need to be granted simultaneously by two different bureaucracies for anything to be built on the property. That means simultaneously satisfying two different sets of rules, one of them clearly written, and the second one not written.


Naturally, I declined to purchase the property.  The best I could offer was that if the redevelopment permit could be obtained while the property was still in the hands of the seller, then I would buy the property with the entitlement as a condition of purchase.


It’s possible that someone who doesn’t perform due diligence might buy the property. In an environment of people offering over the asking price, someone with more money than sense might come along. But the seller is now facing a choice. Nobody who knows what they’re doing will buy this property in its current state.


It’s the seller who has the problem, not the buyer.


In another case, the seller looked on his tax bill and assumed that just because his tax bill said that his property was residential, he assumed that it was zoned residential. Imagine his surprise when I let him know that the property was not in fact zoned residential. That meant that redevelopment of the property would require a zoning change since the existing zoning would not permit any form of development on the property.


You see these are not isolated cases. Sellers rarely know what they own. Sometimes the zoning is changed without their knowledge. Sometimes they knew that the zoning was going to be changed and were unaware of the consequences. Property owners often assume that since the property exists, it’s allowed to exist.


I’ve seen additions to properties that do not conform. The owners of the property never even bothered to check whether a building permit had been issued when they bought the property. Imagine their surprise when I told the seller that the back half of their property was not legally permitted and if there was ever a fire, the insurance company would not pay out on the claim.


That’s right, insurance companies will only insure property that was legally built. If it was built without a permit, their attitude is that it’s not a legal property and therefore they’re under no obligation to insure an illegal property.

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The Seller Knows Less

The Seller Knows Less

Victor Menasce