Bidding Wars - Now you have buyer's Remorse

A major issue arising in bidding wars is when a buyer regrets their purchase decision almost immediately afterwards. Or worse, when their lender appraisal says that they paid too much and will not lend the buyer enough to close the deal. Here are five lessons to learn about the consequences of a buyer’s remorse in these situations.


1. Can the buyer simply refuse to pay the deposit, if it has not yet been paid?

In many bidding wars, this is not possible, as sellers are demanding certified cheques or bank drafts to accompany any offer. However, even if a buyer can either stop payment on an uncertified cheque or refuse to pay the deposit, they are still liable for damages. They can be sued by a seller for the difference in price if the seller subsequently sells for less money. In addition, even if the seller subsequently sells for more money, the buyer can be sued for the amount of the deposit that they failed to deliver.

2. Should a buyer agent approach the listing agent for a mutual release immediately?

Be very careful about this. If a buyer agent communicates that the buyer cannot close, then the seller could take the legal position and declare that the buyer has committed an anticipatory breach of contract. This would permit the seller to treat the contract as terminated by breach, and proceed to sue the buyer for the items listed above. It is best for these negotiations to be carried out by lawyers, to make sure that the parties’ legal position is protected at all times, if a settlement is being negotiated.

3. Is there a legal solution to this?

If there is sufficient time before closing, a buyer is permitted to assign their contract to a new buyer, who could take over their position and close with the seller. This is because unlike a contract with a builder, there is nothing preventing a buyer from assigning a re-sale agreement before closing. A buyer must understand that if they are asking their own agent to “sell” the property for them, they will have to pay real estate commission as well. Therefore, a buyer would have to assign their agreement for a price that is equal to the price they paid plus commission, just to break even.

4. Does a seller have to agree to this assignment?

In most cases the answer is no, unless the original offer contained a seller take-back mortgage. However, in practice, many lenders will not recognize the new buyer unless there is an amendment done to the original agreement to change the buyer name to the new buyer. This will require the consent of the seller.

In my opinion, this is unfortunate as lawyers routinely change how a buyer can take title by providing a direction to this effect on closing. Sellers should consent to this anyway, as long as the original buyer remains liable if the new buyer cannot close the agreement for any reason.

5. Can the buyer list the assignment onto the MLS system?

Theoretically, a buyer could list the property on an MLS system because they have a right in the contract that they can sell. However, most real estate board rules require that to list a property on their system, you must be able to show the property and without the seller’s agreement, this will not be possible.

I had a situation where the buyer could not close after winning a bidding war. I negotiated with the seller’s lawyer to permit the buyer to put the property back onto the MLS system and the seller would permit showings. It was also agreed that the buyer could not make any profit on this re-sale and that they could only recover their extra commission cost. The benefit to the seller was that their deal closed and the parties were able to save themselves from very expensive legal proceedings.

Anyone can close a simple real estate deal. When it comes to choosing or recommending a real estate lawyer, make sure you have one that can solve problems that can arise as well.

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When the square footage is wrong

Agent takes the square footage of the condo floor plan and rounds up!   Then ROLLS the square footage of the balcony into the square footage of the condo unit.  [balcony is a common element that is exclusive use]  Next year the agent uses that as the Square Footage.   You move in and find the unit SMALLER than advertised.

What are the rules?

5 Things to know about square footage I have received calls from buyers and real estate agents complaining about finding out that their home or condominium had less square footage than was represented on their original MLS® listing.   My immediate thought was "did the home shrink after closing?" In other words, if the square footage was really important to you, why didn't you measure it yourself before you bought the home? Here are 5 lessons to remember about square footage: 1.    When you buy from builder plans, nothing is guaranteed Some builders attach plans with square footage to their agreements, other don't. Even if the plan is attached, The Tarion Warranty Programme permits registered builders to make errors up to 2% and unfortunately, there are no penalties if the error exceeds 2%. While buyers can request a price adjustment if the error exceeds 2%, in my experience, most builders will not agree with this. In addition, there is confusion as to whether the measurements are just for interior living space or whether it goes to the exterior walls, and it may not account for pillars or other obstructions inside the unit. So even if you are relying on builder plans when figuring out the square footage, there may be errors in them. 2.    Buyers may be able to sue if the difference is substantial The case law has gone both ways as to whether a buyer can successfully sue if they find that the seller misrepresented the square footage and the difference was substantial, say over 10%. In some cases the listing brokerage was held responsible for not properly verifying the information. But it is not guaranteed. 3.    Will disclaimer clauses protect sellers and real estate salespeople A disclaimer clause will likely protect a seller from liability, unless they knew the information was false and gave it out anyways. However, a real estate salesperson is required to do their due diligence. That does not mean that you can just copy the square footage from an expired listing. If you do not do any due diligence, you may still have violated the Real Estate Council of Ontario Code of Ethics, even with a disclaimer clause. 4.    If you are acting for the buyer, ask how the seller came up with the square footage While buyer salesperson can normally rely on a listing salesperson to conduct due diligence, it is a good idea to always ask where the number for the square footage came from. Was it on plans, through MPAC or just from a prior MLS® listing when they bought in the first place? In addition, if you see a disclaimer clause, explain this to the buyer and consider having the property measured by the buyer themselves for verification. 5.    If you are not sure, just measure it yourself It is easy to be fooled when it comes to square footage. Professional home stagers are experts at making rooms appear larger than they are by the furniture that is used. If you are acting for a seller, discuss with the seller the advantages of hiring a professional to verify the square footage before putting the home on the market. If you are acting for a buyer, ask them if the square footage is important to them, and if necessary, take the time to do some of the measurements with the buyer to make sure the area is close to what is being represented. By asking the right questions both before listing and during the offer negotiations, there should be no complaints or claims about square footage after closing.If you have any stories to share about the GTA housing market or just need some advice, please contact me at mark@realestatelawyers.ca   Same rules apply when your two car garage has an interior hall closet protruding into the garage space or a staircase and landing added inside the garage to deal with the elevation [height] of the garage that renders your two car into a single car garage. The plan and elevation drawings [and municipal tax department] now indicate you have a two car garage where two cars cannot fit. Good advice from Mark Weisleder

Mark wants to inspect that condominium

A book by Mark Weisleder – Put the Pen Down! What Homebuyers and Sellers Need to Know Before Signing On The Dotted Line – will prepare you well for closing day, and the day after.

The veteran real estate lawyer and instructor adapted two other books he wrote for real estate agents to suit the owners and buyers who pay for their services. He has packed in a wealth of information.

More importantly, an inspector could gauge the condition of the building’s heating, ventilation and air condition system, the roof and the garage. He or she could look into the building status certificate, condo association reserve fund, bylaws and rules, if the buyer knew to include this in the offer of purchase.

David Pylyp; There is no objection or interest to impede a home inspection on a high rise condominium unit and I have recommended a home inspector using thermal imaging technology (Shows you if you have water in the ceilings or behind walls) BUT... BUT>>>>

Is the Home Inspector selected by the Purchaser qualified and licensed to render an opinion on the condition of the Heating, Ventilation, Roof, Parking, Garage, Plumbing Electrical and appliance condition? How is the Home inspector qualified to read a financial statement contained in the Status Certificate about the long term requirements to repair or capital improvement budgets.

Maybe the Board of Directors of the Condominium Corporation having completed their Reserve Fund Studies as required every five years by Ontario Legislation; have decided that OTHER items need attention first. Who will provide the qualified and quantified answer?

The Home Inspectors that I generally meet have a specific trade specialty and have retired, modified, or evolved their career from construction into home inspections. While the standards are ever increasing to the betterment for the consumer; I am not aware of a financial statement analysis component in the Home Inspection Licensing Program.

It sounds great. But It just won't happen.

Competition Bureau misguided about MLS

Buying a home is a lot different than buying an airline ticket. Yet if you read the complaint by the Competition Bureau against the Canadian Real Estate Association (CREA), you would think it is that simple to buy or sell a home in Canada, by just using the Internet for support. Unfortunately, it is not that easy.

According to the Bureau, CREA and its member real estate boards effectively control the market in Canada, since 90 per cent of all residential home sales are completed using the Multiple Listing Service (MLS) systems, and consumers thus have no real choice in paying commissions, which, according to the bureau, is usually five per cent of the sale price. It is further claimed that the rules passed by CREA regarding use of these systems prevent anyone from offering different service models, thus eliminating choice for consumers. They would like every seller and buyer to have access to the MLS system, and be able to sell and buy properties themselves, without the services of a real estate salesperson.

No statistics are introduced by the bureau to support any of these claims. The fact is that there are other alternatives for Canadian consumers today, both within the MLS systems and outside it. There are many “For Sale by Owner” websites gaining market share across Canada, offering a flat fee service to sell your home. These include Com Free in Western Canada, Grape Vine in Ottawa and many others who participate in the National FSBO network.

Even within MLS, there is no set commission and consumers can negotiate directly with their salesperson. There are many examples across Canada where salespeople and brokerage companies charge less than five per cent commission, including flat fees.

Now that CREA has introduced changes that permit sellers to post their listings onto MLS through a realtor and not use an agent for any other service, we will see even more business models introduced by salespeople going forward, again offering more choice for consumers.

In my opinion, there is a real danger to consumers in trying to buy or sell their homes without the advice of a real estate professional. Sellers will not know how to qualify buyers who attempt to tour their home, will not understand how to properly price their home for sale and will not appreciate their obligations of disclosure of defects to unwary buyers. This will result in sellers not obtaining the maximum sale price for their homes and potentially involve them in unnecessary lawsuits from buyers.

Buyers will not know if the seller has any authority to sell the home, or whether the property is in fact in the process of being taken over by the bank. Deposits could thus be fraudulently misappropriated.

To try and understand the bureau’s position, let’s say a company bought a 100-acre lot and started selling cars, each one inspected by their certified technicians and advertised across Canada. The company was very successful. Buyers trusted them. Now a private car seller finds out that they cannot get nearly the price or exposure by selling by themselves. Should that person be able to go to the government and demand that he be put on the successful seller’s car lot, with the private seller’s name in the windshield, selling his own uncertified car to the public?

In a sense, this is what the bureau is asking regarding the MLS system, which has been built, paid for and maintained by realtors, to provide Canadians with the widest exposure, security and protection when buying or selling their home across Canada.

When you buy an airline ticket on the Internet, it costs you about $100 if you change your mind. If you make a mistake in the largest purchase decision of your life, it may cost you tens of thousands, and unnecessary legal headaches.

Now that there are new MLS rules in place, my advice to the bureau and CREA is to take some time to monitor developments over the next year, before rushing to trial, where only the lawyers win. I would be pleased to hear your own views on this very important subject.

Mark Weisleder is a lawyer, author, course developer and public speaker for the real estate industry who is an occasional contributor to Real Estate News. Visit him online at www.markweisleder.com.

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Changing Your Mind can be costly

Real estate home or condominium agreements may be the largest contractual obligation that a buyer and seller may ever sign. It is a serious obligation and both buyers and sellers must understand the consequences of changing their minds once the contract has been signed and accepted.

Most offers written in Ontario provide that the deposit is to be paid within 24 hours of acceptance of the offer by the seller. That means that if a seller accepts the offer at 4 p.m. on March 15, then the deposit must be paid to the seller's listing brokerage no later than 4 p.m. on March 16. The only way to extend this deadline is if there is an agreement by the seller and the buyer in writing.

However, I have heard of many situations where buyers have had a "change of heart," during this 24-hour period and decide that they will not pay their deposit and that will be the end of the matter. Not true. By not paying the deposit, the buyer has breached the agreement. The seller can then bring an action to sue them for any damages they may incur.

For example, let's say a buyer puts in an offer today for $300,000, which the seller accepts. Then the buyer changes his or her mind and refuses to pay the deposit. Now the seller states that the buyer has breached the agreement. The market changes and the seller resells the property to a second buyer for $280,000. The seller can then sue the original buyer for the $20,000 loss. Sellers can conduct such a lawsuit by themselves in Small Claims Court, because the limit in Small Claims Court in Ontario was increased on Jan. 1 to $25,000.

Nevertheless, sellers should always seek legal advice before embarking on any legal process. Now let's use the same example, an agreement to sell for $300,000, but it is the seller who has a change of heart and refuses to either accept the buyer's deposit or just refuses to close the deal altogether. The buyer can now start legal proceedings to tie up the seller's property and sue for specific performance of the agreement.

This means that the buyer is asking the court to force the seller to sell the property at the original agreed upon price of $300,000. This court case can take years to resolve and if the buyer wins, he or she will get the property for $300,000 as well as most legal fees paid. The seller will not be able to sell the property to anyone else during this time period.

What this demonstrates is that buyers and sellers need to be properly prepared and obtain the right advice before they even think of signing or accepting any agreement. Sellers must hire the right listing salesperson to make certain they know what their property is worth and ensure the property is marketed to reach the most potential buyers before considering any offer.

For buyers it means working with a buyer salesperson to make sure that they also know what the property is worth, not only so they don't overpay, but also to make sure they are protected from any surprises about the property after closing, such as hidden defects.

By being properly prepared in advance, there will be no need to change your mind later.

Email: mark@markweisleder.com Mark Weisleder is a lawyer, author and public speaker for the real estate industry who is a regular contributor to Real Estate News.