Cancelling a Firm Deal: Not Without A Fight

They asked, so I answered.?

So, how do you educate your clients … in order to prevent?deal?failure?

Ideally, all your real estate transactions will go smoothly (as planned), but issues sometimes happen. The worst, a?breach of an Agreement of Purchase and Sale.

As we all know, a?Buyer?can?ONLY walk away from a?deal?if a condition is not fulfilled by the seller.

I'd like to?underscore?that warranties on the APS are not the same as conditions.

The difference between warranty and condition in contract law is essentially this: conditions are indispensable to the agreement, while warranties are not.

A simple example of a warranty could be leaving the house in “broom swept condition” or removing the garbage before the final walk through.??

Huge difference.

But, back to the important stuff.?

Unless you have enough time to sit both parties down for a cup of coffee and?get?down to the nitty gritty... "Fix it" clauses?can?be a risky compromise depending on what expectations the?buyer?may have.

Other miscellaneous conditions like "fixing a toilet," replacing cupboards, or redoing the roof might be more fitting for a price drop in exchange.?

In most cases, it's wise to add on a Status Certificate condition to ensure there are no concerns with the legal, and financial health of the condominium corporation.

Fun fact: We do around seven to ten status certificate reviews per week, and you'd be surprised what we see!

Not to?get?off topic ... I could not believe what I encountered last week:?The condo corporation had restricted each tenant to having 1 dog and 1 cat. They would absolutely not permit 2 cats in the same household.

That was a?deal?breaker for our client, and she decided to walk away from the?deal?to shop for a new unit.

The?bottom line?is to limit and consolidate the number of "fix it" clauses on the APS and instead renegotiate a new purchase price with the seller to prevent any misinterpretations.

Even if things all go perfectly, it?can?be a stressful time right now to be in the market for a new home.?

What is even more stressful for a?buyer?

Losing their deposit and having to leave their hard earned money at the door.

Typically, they begin hunting until they find the "perfect" home, then make their (conditional) offer, and submit their deposit.

But, what if things start to go wrong?

The bank could refuse the mortgage application, causing the purchase to delay or potentially fall through.

OR;

They could leave it until the last minute, and not have legal representation to meet the requisition date.

What happens then?

In the first case, the?buyer's real estate lawyer would typically request an extension from the seller to buy time until they?get?an approval.

As the seller's real estate lawyer, the first thing we need to do is contact the?buyer's real estate lawyer and let them know that their client has defaulted on the purchase agreement.

We explain that they may still be liable for any damages caused by their default, but that they will have to resolve those issues directly with their client.

Another step we?can?take, if the seller is agreeable, is to request that the?buyer's deposit be released from the listing brokerage's trust account to the seller's lawyer's trust account?to ensure that the seller client doesn't lose their deposit, and that you as the realtor,?can?guarantee your commission.

By the time an APS is breached by the?buyer, a seller would generally be considering other offers to decide whether or not to accept one of them instead or to allow the original?buyer?an extension.

As previously stated, it's important to explain the ins and outs before your clients sign a conditional offer. Once that offer is active, the seller?can?not re-list their property until a mutual release is signed, or until a court order has been finalized. So, their eggs are basically ALL in the same basket until the deposit is settled.

There are two ways to?get?your deposit returned:

1. Mutual Release Form (both parties sign to release deposit)
2. Court Order (may take more than three years to settle)

A Mutual Release Form is one of the most important documents in real estate transactions. This form is designed to be signed by both the buyers and sellers to cancel an Agreement of Purchase and Sale.?

When executed, this document cancels the agreement and “releases” all parties from any future liabilities or claims.?It's important to emphasize that a mutual release cannot be executed without both parties agreeing to the terms.?

If both parties sign it, they will be able to keep their deposits and move on with their lives.

But as you?can?imagine, in a slower market where demand is low, and rates remain high… the seller would be?out?of pocket if the?deal?fell through.?

Not only for the difference in appreciation, but market value, staging costs, housing accommodations, with the initial deposit on the table.?

This means that sellers may have more ammunition to sue buyers due to their default and refuse to even sign the Mutual Release Form at all.

So, how does a?buyer?get?out?of a?deal?

Well in most cases they don't.

Not legally, that is, and not without a fight from the seller, and potentially serious repercussions.

It's a grey area that is determined by how diligent your?real estate lawyer?is, how careful you are as a real estate professional in setting expectations, how committed your clients are to their new commitment, and how educated BOTH parties are about their personal contractual obligations.

I’ve been asked a few times in the past month either?“what happens when a?buyer?won’t close?”?or,?“how?can?a?buyer?get?out?of a?firm?deal.”?

It all depends on what a?buyer?or seller wants to do, how much time and money they want to spend arguing their position, and which side will give up first.

If you have any questions, please don't hesitate to?book a call?with me, and I will personally help you find the answer to your question or the solution to your matter.

#realestateagent #mortgageagent #listingagent #buyeragent #realestatelawyer