Selling your home is thrilling. Unless it’s a foreclosure, most Ontario sellers are (literally) hoping to move on. It’s hard to believe your sail could go off the rails.
Four Reasons Home Sales Collapse
You thought the deal was done, but now your realtor has delivered bad news. The sale deal has collapsed and you have to start over again.
Four common reasons a home sale fails include:
- The buyer can’t get financing.
The buyer may be financially in over their head. Even with a pre-approved mortgage, it doesn’t take much for buyers with a minimum downpayment to get rejected by a bank or mortgage broker. A new job can be the issue — until the buyer completes their probationary period, a home lender may not approve a low ratio mortgage. The buyer may also have confused “pre-qualified” with “pre-approved.” In other words, although they could qualify for a mortgage, actual approval depends on mortgage rates when they buy.
- Their current home is for sale.
Buyers trading up to a new home may be under contract to sell their current residence. Even in a hot real estate market, it’s a gamble when or if a home will sell. Although they may be able to get bridge financing to tide them over while they wait, mortgage lenders tend not to be risk takers. Unless the buyer’s credit is sterling or they have cash or other investments, you could be out of luck.
- They bought a new car.
Buyers forget their pre-approved mortgage amount was based on their previous debts. Major purchases like a new vehicle or investing in that goldmine of a coffee shop their brother-in-law found can be enough to tip the scales against them. Even a new baby could put buying a home out of reach.
- Their offer is too rich.
Home lenders can decline a mortgage if the home appraisal is lower than the buyer offered. In these COVID-19 times, Ontario house prices have dropped. What your home was worth before the pandemic began may not be its current market value. A lender will only finance what they can optimistically recover, after foreclosure expenses, if the buyer defaults.
Legal Contract or Subject-to Failure?
An agreement of purchase and sale is a legally binding contract. Once a valid offer is accepted, your contract seems firm, “on the face of it”. That won’t help you, however, if the buyer isn’t able or willing to follow through. Most real estate agreements include “subject-to” conditions like a satisfactory home appraisal or mortgage financing. Think of them as escape clauses.
Why Realtors Advise Against Pursuing a Reluctant Buyer
That phrase “on the face of it” may come back to haunt you. An accepted offer is firm as long all the terms and conditions are met or waived. But a buyer who is on the fence may use the subject-to conditions to back out. Family and friends can be influential in talking a buyer out of a real estate deal. Wall Street worries or sudden job insecurity could be the last straw. Buyer’s remorse is a powerful thing. Proving an excuse isn’t valid will take time and money away from relisting your home for sale.
Forfeiting the Buyer’s Deposit
A buyer who backs out can hurt you badly. If you are counting on the cash to buy a new home yourself, you could be out of luck. You could even be forced to forfeit the deposit on your own offer and pay the seller legal fees, mortgage holding costs or other damages. Is it worth pursuing your buyer to keep their deposit? Talk to your realtor or a local real estate lawyer about your options. The buyer may be willing to meet you halfway.
Missed Out on a Hot Real Estate Market
Real estate upswings come and go. While you were waiting for a real estate transaction to close, events may have conspired against you. Pandemic anyone? You may be able to relist and recover your losses by selling your home for more than the first buyer offered. With house prices and sales dipping across Ontario though, you could take a loss. A real estate lawyer can help you decide if your damages are sufficient to take the buyer to court.
Reducing Financial Losses When a Sale Falls Through
Let’s say they are. For instance, the buyer offered $375,000 for your condo, then walked away. A sudden recession meant you were only able to get $325,000 from the next buyer. Although you tried to stem your losses by immediately relisting, you are still out $50,000 (less if you kept the first buyer’s $5,000 deposit). Suing the first buyer for the difference ($50,000 or $45,000, as the case may be) may help right the wrong.
Weighing Your Options as the Wronged Home Seller
Threatening to sue can seem appealing. Axess Law advises getting legal advice. You’ll need a rock solid case before the benefits of suing outweigh the cost.
Affordable Ontario Real Estate Lawyers
Axess Law flat fee real estate lawyers are available in person or by video conference 7 days a week, at your convenience. Make a day or evening appointment by calling toll free to 1-877-552-9377 or 647-479-0118 in Toronto or use our online booking form. In person appointments are available in Toronto, Scarborough, Vaughan, Etobicoke, Ottawa, Mississauga Winston Churchill or Mississauga Heartland. Video calls and e-signing appointments are available from any location in Ontario.
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