Be careful when making a home purchase offer without a Financing Condition
- Couple ordered to pay $470,000 after reneging on Ontario home deal
A recent Toronto Start article highlighted the risk of not including a Financing Condition on your house purchase offer. Back in late 2016 and early 2017, it became customary to see buyers making home purchases with no conditions, i.e., not conditional on financing. Many buyers subsequently bought homes, and then were unable to close, as the price of their existing feel with the market correction. Many of those buyers are now in court attempting to recover their deposits. The first of those cases in Ontario has now reached a conclusion, with the defaulting buyers now obligated to pay damages of $470,000!
Damages associated with backing away from a firm (no conditions) house purchase can be quite extensive, as they include the drop in price of the subject home, in the time from the initial deal (housing price peak) to the sale price when the house was later relisted and resold at a lower market. As an example, if a house sold with no conditions in the spring of 2017, for $1.0 million, and then had to be relisted and resold after the market correction, for 15% less at $850,000, the damages would include the price reduction of $150,000. Legal costs could also be awarded.
We’re likely to see many more of these stories as these many cases work their way through the Ontario courts.
Firm buyers often win in competition, and although the market is fairly balanced now, we still see competition for some properties. Should buyers go firm on house purchases? It’s obviously risky. In some cases the seller will not resist giving the buyer the deposit back. In others, the seller is willing to go to court for damages. If you’re dealing with a mortgage broker, he/she should help you figure out. If not, call us and we’ll connect you to our mortgage broker – she’s outstanding and has helped many of our clients.
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