So, you’ve entered into one of the biggest contracts you will ever into, but you’re having cold feet. What really happens?
Whether you are the Purchaser or Seller in the Agreement of Purchase and Sale (“APS”), you are bound by the agreement. This means that whether you decide you love your home after all or you can’t afford the home your just agreed to buy, you will be tendered on, (noted in default for failing to be ready, willing, and able to close) should you fail to close. It is for these reasons that careful consideration should be made prior to entering the APS.
For a contract to be legally binding, it must contain an offer, acceptant and consideration. Given that the typically used OREA form, which is commonly used for almost all real estate transactions in Ontario, encompasses all those qualities, once the APS is signed, the two parties are bound by the terms and must agree to close by the mutually agreed completion date, unless they enter an amendment to the APS.
If the Buyer decides to walk out of a firm purchase or simply cannot get approved for financing prior to the completion date, the seller reserves the right to tender on that purchaser and note them in breach of the contract. Following that determination, they can and most often will, bring a claim against that Purchaser and almost always successfully claim for remediation of their losses. This is especially seen in a hot sellers’ market, where buyers become overzealous in a multiple offer situation and signs the APS for a certain value, that is often a peak value. Months later, the market cools down, and the appraised value of the property significantly drops to that which the buyer agreed on the APS. The purchaser is unable to secure financing and of course the seller tenders. The seller will then relist the home and sell at a much lower price than originally agreed with the former buyer. The seller may claim for the different between the value of the former APS and the current sold value, in addition to their realized losses, including legal fees, etc. It is not just the deposit that is lost! Buyers are always encouraged to get their pre-approvals prior to making offers and discuss their concerns with their realtor or real estate Lawyer, prior to making the plunge to buy property.
A buyer can too tender on a seller, although not as common, if a seller is not ready, willing, and able to close on the completion date. If the seller is unable to clear all encumbrances off title prior to the completion date, perhaps because the value of their debts surpasses the sold value, or alternatively, their spouse refuses to give spouse consent on the sale of the home, then the deal will fall through, and the buyer will tender on the seller. In this case, the buyer will include in their claim their losses in addition to retrieval of their deposit. It is important for sellers to be mindful of their legal obligations prior to accepting offers and discuss their file with their real estate Lawyer.
Natalie Hamzeh, LL.B. LL.M. https://thelawboutique.ca/