Anyone involved in the GTA real estate market understands that the market has changed dramatically since the introduction of the government changes in April. These changes, announced without any advance warning, have had a dramatic impact for many buyers and sellers who bought or sold the property prior to their introduction. My office has had many deals involving buyers who could not close either because they could not sell their existing property for the price that they expected to receive or because their lender reappraised the property that they were buying for a lower value resulting in insufficient mortgage funds. Regardless, the buyer could not close and requested either an extension of the closing date or a price reduction from the seller. Here are some tips to consider with deals that may be falling apart.
- Be proactive-there is no reason why a buyer should be asking a seller for an extension only one or two days prior to closing. It is good practice to monitor your transactions so that if there is a problem, it can be identified well before closing and not at the last minute. Asking for an extension right before the closing date is like ambushing the seller. If you are representing the buyer and it has not sold its property you should know this far in advance of the closing date and you should warn the seller as early as possible that your buyer may need an extension of the closing date. Requesting an extension well before the closing date will reduce the shock impact and may reduce some of the costs that the seller will likely charge if it is willing to grant an extension.
- Involve the lawyer as early as possible-every situation is different and you as a realtor have an obligation to protect your client. By saying or doing the wrong thing, you can jeopardize your client’s legal position. Accordingly, you should advise your client to obtain legal advice from their lawyer as soon as the potential problem arises. You should not be providing legal advice. Do not recommend a lawyer based on price alone. These types of problems will require a lawyer who is experienced in these types of situations.
- Try to keep the deal alive-remember that neither party is going to be totally happy with the solution; however, keeping the deal alive is infinitely better than canceling the deal or worse, going to court. I have repeatedly said that going court should be avoided. Litigation is expensive, time-consuming and uncertain. I have been involved in a number of deals that I managed to keep alive with extended complicated and time-consuming negotiations. While the outcome was not perfect, it was much better than forfeiting a large deposit or worse, being sued and having to go to court.
- Extension costs-if the deal is going to be extended, the seller will usually dictate the terms of the extension. When acting for a seller I typically ask for a further deposit which may be non-refundable, but credited towards the purchase price. A further deposit by the buyer shows good faith and that the buyer is serious about buying the property. If the buyer will allow the deposit to be released to the seller before closing, this may allow the seller some financial breathing room during the extension. The seller should also request compensation for things such as interest on its mortgage and interest on the net sale proceeds. The costs of the extension will depend on the particular situation.
- Avoid buying and selling on the same day-dealing with extensions is difficult enough. However, the process becomes much more complex when one party is buying or selling of same day. When this happens, there are multiple parties, multiple lawyers and the potential costs, damages and risks are multiplied. It makes a bad situation even worse.
Deals that are falling apart are very stressful for all parties. However, by following the strategies outlined above and having an experienced real estate lawyer on your side, this can help alleviate the stress and increase the likelihood that the transaction will eventually close.