After soaring for years, house prices in the Greater Toronto Area and beyond are now falling back to earth. And that’s left some buyers who bought when prices were at their highest looking to get out of their deals.
But many of these buyers are finding that walking away from a bad deal is not as simple as they may think.
One home seller told CTV Toronto earlier this month that just weeks before he was due to move out, he received a letter from his buyers saying they wanted to “adjust” their offer. They asked him to reduce the sale price, extend the closing date, and loan them $500,000 in a vendor takeback mortgage. He refused.
While some homebuyers may try creative ways to tweak purchase agreements, Shaneka Taylor, a real estate litigator and real estate agent, says there are only a few legal ways a buyer can back out of a deal.
The first is if the house sale was conditional, and the conditions that the two parties agreed to cannot be fulfilled in time.
“Then they (the buyer) can get out of the deal that way because the deal dies automatically,” Taylor told CTV’s Your Morning on Tuesday.
In most markets, buyers will choose to make a purchase agreement conditional on a satisfactory home inspection. But buyers cannot back out of a deal simply because the inspection found some issues with the house.
Instead, they must provide a legitimate reason why the inspection report or condominium status certificate was too unsatisfactory for the deal to go forward.
Another way a buyer can get out of a deal is if a home seller cannot deliver “clean title” on the property -- meaning there are liens on the home, or open work orders or work permits. That could lead to the cancellation of the purchase agreement, Taylor said.
A buyer can also cancel if there has been substantial damage to the property before closing, such as a flood that resulted in damage that has not been repaired.
Another way a buyer can back out of a deal is if they can show that the seller knowingly misrepresented the property in some material way -- perhaps by not being truthful about whether the property had ever experienced fire, flood or serious mould issues.
“But it’s very difficult to prove misrepresentation,” Taylor said, adding that’s why it’s important to have a lawyer on your side when purchasing.
There’s no way to know how many sellers have been left stranded by buyers who backed out of deals in recent months as the markets have cooled. That’s because transactions between buyers and sellers are considered private and are thus not required to be reported to any level of government.
But several Toronto real estate lawyers say they have noticed a recent upsurge in the number of buyers trying to re-negotiate deals -- usually after they realize the price they paid is more than the house is worth by the closing date.
Taylor says it’s important to remember that there really is not much room for buyer’s remorse in real estate. Once both the buyer and the seller sign a purchase agreement, they have entered into a legal contract.
“At the end of the day, once there is an agreement of purchase and sale that is signed and it’s not conditional or the condition has been waived, both parties are stuck with that agreement,” she said.
If a buyer does choose to back out a deal, the seller can sue that buyer if they go on and sell to someone else for a lower price.
In that case, the seller can sue the first buyer for the difference in price, though it’s worth noting that going to court will incur its own costs.
