In recent weeks, I’ve seen a very unsettling trend coming through the real estate market by storm. I can’t say that it is the larger part of our transactions, but I can say that even one in ten deals is too much. What am I referring to? Buyers withdrawing, or trying to withdraw from their accepted promise to purchase without due cause. So the focus of this article is to explain which conditions are applicable in your promise to purchase (and allow you to withdraw) and which situations are not suitable for a buyer to declare their offer null and void.
First and foremost, it is important to note that all offers used by residential real estate brokers are drafted by OACIQ and have standard conditions, clauses and stipulations for all parties involved. Knowing this can reassure you that the real estate professional you are working with cannot change the contract in your favour, or against you in any way. So, what are the conditions that are always found in a normal promise to purchase (That allow for a withdrawal)
1. The condition of financing (Section 6.1)
– As everyone knows, shopping for a home without a pre-approval is like throwing paper planes out the window and hoping they don’t land eventually… That being said, why is there a condition of financing? – When you make an offer to purchase a home, you may be pre-approved, but your financial institution must still approve of your dossier in total and make sure that the property you have chosen to purchase fits their minimum financing requirements and makes sense (price, conditions, etc). Normally, every offer comes with a time delay of roughly 7-15 days for financing, allowing for the purchaser to submit the dossier to their bank, and supply the vendor with a final approval within the delays mentioned prior.
What happens if you don’t get approved? (Get refused) – You MUST supply the vendor with a refusal letter from a financial institution (not a mortgage broker or firm) and it must state that you are refused for financing and be signed by an authorized representative. In this case, the vendor can accept the refusal, or invoke his right to impose Section 6.2 of the promise to purchase, which forces the purchaser to try to obtain financing at a financial institution of the vendor’s choice within 5 days. This usually only happens if the vendor feels as though the buyer is lying, or finds that something is very fishy with the situation.
2. The Condition of Inspection (Section 8.1)
– Buying a home without a pre-approval may be silly, but not passing inspection is just straight up not logical. The cost of an inspection for a standard home runs at about $850 – $1,000 for the buyer. This inspection will give the buyer an in depth look at the home, the way it was built and its defects (that need correcting) . The typical time frame for inspection is usually 7-10 days + 4 days for the review of the report. Although common belief is that the inspection is used for negotiation that is not the case. When choosing your inspector and performing the inspection, yes the inspector will bring forward all of the errors, or problems of the home, but he is not there to strictly have you reduce the price, but identify if the buyer feels comfortable with the purchase.
Once the inspection is completed and the report is reviewed by the purchaser, although the clause is written with a certain degree of ambiguity.. the choices are simple:
1. Accept the report and home as is and move forward
2. Declare the off null and void due to major unforeseen expenses that significantly reduce the value of the property to the buyer or need immediate repair.
3. Ask for repairs to be done by the vendor, or a price reduction. Should an agreement be made, then the deal moves forward.
The buyer must always understand that you cannot walk away from a purchase due to one foundation crack, or a chip in the marble countertops or even a negative land slope, the reason for declaring an offer null and void must be significant and if the vendor can prove that it was not and he sells for less money to someone else has legal recourse against the purchaser that declared their offer null and void.
3. The Condition of Document Revision (Section 9.1)
– Most commonly used during the purchase of a condo (divided or undivided) but can also be used during the purchase of a home. This is the most loosely written clause in the promise to purchase and is always subject to debate, the review and revision of documents such as minutes, financial statements and building rules is very subjective. It could be that if your building has a rule that does not allow for guests on Sundays between 3-4pm, the buyer may feel that it just does not work for them and allows them to walk away from the deal (obviously exaggerated, but think of no BBQ, or weight limit for animals etc). The buyer usually has a delay of 3-5 days to receive the documents + 7 to review them all. During this time, The buyer must review the documents, ask any questions they may have and declare themselves satisfied or the offer null and void.
As you can see, the promise to purchase does have 3, sometimes even 4 or 5 escape routes for the purchaser, and unfortunately there is not much that a seller can do to absolutely guarantee a sale once his offer is accepted. However it is also very important for the purchaser to understand that if they were to declare their offer null and void without justified reason, they can be liable for damages owed to the sellers if they can prove that it was not justified to walk away from the purchase, it may be hard, but it is not impossible.
On another note, changing your mind because you are panicking, feeling anxious or just straight out changing your mind does not work under any circumstances if that is the case and the vendor decides that he wants to sue you for damages, be ready for a long and hard road ahead. Again, important mention to the vendors, being vindictive is always the hard and annoying route… it won’t be easy to sue a buyer, it can be costly, and lengthy and cause extreme stress
All in all, if you are heading into the purchase or sale of a home, make sure you are ready for the ride and that you have a clear mind and good intentions.
