What happens if buyer cannot close real estate deal on time in Ontario?
Tags: Toronto real estate, real estate closing, listing agent, real estate law, real estate tips
Estimate reading time: 2 minutes
Recently I have encountered a case that the buyer cannot close a real estate transaction on time due to financing. It is an unfortunate thing for both the buyer and the seller. However, I feel it is worthwhile to write a blog about this so that our readers can learn something from it. Please be advised that I am not a real estate lawyer, so my blog content does not consider as legal advice.
Background of the case
Buyer bought the property in early March and have a closing date in mid-May. The lender appraisal value is about $200k less than the sold price since the appraisal date was in early May when the overall market price drops about 15%. The buyer did not close the deal on time and breached of contract.
To avoid a lawsuit or not close on time, here are few things buyer can do
- Ensure lender appraisal is conducted in a timely manner.
- Refinance from other property owned by the buyer if there is any.
- Obtain a private mortgage
- Ask the seller nicely for an extension, at the same time, put down more deposit as good faith and pay the seller for damage compensation.
What the seller can do if the buyer cannot close on time?
- Consider granting buyer’s extension request, but always try to obtain more deposit and look for any damage compensation
- Put the property back on the market again and sell it quickly to try reducing the loss. And then sue the buyer for all damage occurred.
- Consider obtaining bridge loan as last resort since the interest on the bridge loan is quite high.
What can be consider as seller’s damage?
For example, but not limit to the followings: interest or penalty on mortgage after the closing date, interest for bridge loan, moving expenses, legal fees, real estate agent’s commission, difference in value of the two deals.
Some buyers may think they can back out of the deal by just giving up the initial deposit. That is not true. They may be liable for much more than just the deposit. Here is a scenario, buyer A puts in an offer for $1.5 millions and signs a contract. But the deal does not close. The homeowner sells to buyer B for $1.3 millions which is $200k less than the original sales price. The seller has the right to sue buyer A for the difference in value of the two deals. The buyer may need to compensate the seller $200k on top of the initial deposit, plus real estate agent commission, legal fees, and any other damage compensation.
The housing market can be hard to predict so it is important to plan ahead and speak to a real estate lawyer in advance.