Searched term- “back out real estate purchase Ontario”. This is the latest search term that brought someone to my blog. I have never covered backing out of a purchase before, so I might as well give you a brief overview. In general you do not want to go through this unless there are extreme circumstances where you feel the seller has misrepresented the home or that the home has been damaged since you purchased the home and the seller is not willing to fix the damage.
When I say backing out of a purchase I am talking about after all of the conditions to your purchase agreement have been removed and you decide not to go through with the purchase. After this point you do not have any legal right to cancel the agreement without consent from all parties in writing. The exceptions would be if the house burnt down (or was significantly damaged and left unfixed by the closing date) and is therefore not the product that you agreed to purchase. As long as the home is in a relatively close condition compared to when you bought it there are a few things that will happen. Most notably, lawyers start buzzing around trying to assess damages and what compensations are required.
If you are a buyer and you back out of your purchase your deposit sits in the trust account until there is an agreement between you and the seller, or a court order, stating how the deposit will be distributed. Quite often the deposit will be given to the party that still wants to complete the agreement. However there are occasions where this is not true. This means that the legal fees of your real estate transaction increase dramatically.
Next if you back out of the agreement then you will still owe your Realtor a commission so long as the other party wants to close the deal. If your Realtor was supposed to be paid by the listing agent, then that commission will now fall on you.
You may also be held responsible for any losses that the other parties suffer from your refusal to close. This means you are the buyer and the seller has to drop their price by $20,000 to get a quick sale, you can be charged that $20,000 plus and incidental expenses that the seller incurs, within reasonable limits.
The bottom line is that backing out of a purchase agreement can be very expensive so avoid it at all costs. If you are unsure about whether a home is right for you, do not put in an offer. If you like the home and remove the conditions do everything you can to make sure the deal closes. In any case if there is a potential that your sale or purchase may not be able to close, talk to you lawyer right away.
Wednesday, July 19, 2006
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4 comments:
If you could clarify something for me it would be much appreciated. We sold our property late last year and are due to close next week, the buyer is starting to ask for extensions etc... the buyer put down a large deposit now my question is this: if the transaction is NOT completed by the Purchaser who gets the deposit? I was told the Realtor takes what would have been their "potential" commission out of the sale and the remainder would be dispersed to us it this correct?
Thank you for your great question. My answer is posted here:
http://york-region-real-estate.blogspot.com/2007/04/backing-out-of-real-estate-deal-q.html#links
We had a legal commitment from a buyer to purchase our house - all was done thru real estate agents. On the closing day, the buyer backed out at the last minute. We had already moved and rented, paid first and last, got a storage unit,had to re-instate the insurance as vacant (more expensive) No one seems to know why the buyer backed out - we have a lawyer but can you provide us with any other information?
My advise is to listen to your lawyer's advise. It would be best if you could find out why they backed out as that may effect the answer to whether or not it is worth taking legal action against the buyer. If they are were refused financing or had a major financial change in there life leading to filing for bankruptcy, between when they made their offer and closing, then suing may not be worth the lawyer fees if they won't be able to pay for your losses.
That said the buyer is still liable for any expenses that you incur due to their breach of contract. Unfortunately, even if they can pay it will take time and that does not solve any of your immediate concerns. Since the Buyer has breached the purchase contract you should be able to put the home back on the market and sell it to another buyer and if you sell for less than the first Buyer's agreement or incur extra expenses then you can take legal action to have the first Buyer pay for the difference.
That said, always talk to your lawyer before taking action when a contract is breached as there may be circumstances that mitigate the buyer or limit what actions you are allowed to take. In a situation like this never sign anything that your lawyer has not approved. The deposit can not be released to anyone without a signed mutual release for stating how the money is to be released, to whom and whether or not the parties are released from any further liabilities.
Please remember that real estate agents/sales representatives/brokers are not lawyers and, although knowledgeable in certain aspects of contractual law, do not replace a lawyer's services. We know the buying and selling process, negotiations, and enough contractual law to draft agreements that should limit negative issues, but when something does go against the plans then lawyers is required to determine the extent of liability for each party involved.
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