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?
was posed by Anonymous on my original post "Backing out of a real estate deal ?". This is a commonly asked questions and the answer is not as cut and dry as I would like.
In Ontario, Canada, the basic answer is that the deposit stays in the trust account until the buyer and the seller can come to an agreement on how it is to be dispersed, or until there is a court order stating how it will be dispersed. In most cases the funds are given to the party that still wants to close the sale, in this question that would be the seller, however it is not guaranteed.
So if the buyer backs our of the real estate deal they have two options. They can sign a mutual release noting that all or part of deposit is to be dispersed to the seller. Or they can let it go to court and have the courts decide how it will be released. In the first case the seller has to agree but the seller may be giving up any rights to further actions against the buyer should they not be able to sell the home without incurring a loss (relative to the original agreement). Going through the courts though will take more time and lawyer fees but may end up with the seller (in this case) getting more money or compensation.
Always consult your lawyer before signing anything regarding a non-mutually agreeable disposition of the trust funds. ie if you are less that comfortable with what you are being asked to sign or the outcome will be anything that is less than your preferred outcome, talk to a lawyer.
As for the agents, the they only get paid if the sale closes or if their client is the party that is backing out and the other party still wants to close. So in the case above the seller's agent would not be paid but the Buyer's agent could bill the buyer for the commission that they would have earned had the buyer not breached the purchase agreement (pending any adjustments in the listing or purchase agreement, which does not happen often). REALTORS® get paid for results, unless you are using a flat fee service that is paid up front, and the only result that counts is the final sale and closing.
As a seller, if the buyer backs out, it would be nice to compensate your agent for the hard work, frustration and disappointment involved with a sale going sour. However, there is nothing in the standard forms that give the agent any claim to compensation so long as the sale does not close as a result of the other party. If both parties decide not to close and agree to a mutual release then non of the agents get paid.
Posts
9 comments:
thank you very much. Another related Question: Who initiates the mutual release and are the agents of the buyer and seller involved? Is it done through a lawyer???
Either the buyer or the seller can initiate the mutual release. They would usually have their agent or their lawyer draw up the document and submit it to the other party. It is a good idea to make sure that all parties (buyer, seller, agents and lawyers) know what is being requested and possibly why (you may get the release if they feel that you are in a situation that is newly developed and makes closing impossible, but no guarantees). You should talk to your lawyer and explain your situation before you start any paperwork in order to get his/her legal advise as there may be specific issues with the purchase or sale that may make your contract less enforceable, although that would not reflect well on either REALTOR® involved.
There is nothing that says the other party has to release you from the contract, however if there is little benefit to them by waiting until closing to have the contract breached when you do not or can not close then they may see it as best to move on and get the home sold again. That said they will want compensation and that is likely to come in the form of your deposit. You may also be responsible for the commission that your REALTOR® was going to earn, since you initiated the release and the other party was willing to close.
I hope that helps a bit.
Yet another related question:
Received an offer to purchase, with no conditions (presented by my broker). Accepted and signed back the offer. However, as it was late in the evening when the offer was presented, a deposit cheque in the amount of $20K did not accompany the offer but was promised to be paid the next day.
The deposit cheque was not forthcoming and now it looks like the buyer wants to back out. There were other offers (albeit much lower) that had been refused in favor of the one we accepted. Do we have any recourse with the buyer who wants to now back out? Does the fact we did not physically receive the deposit have any bearing on their obligation to fulfill the contract? (We live in Mississauga, Ont). Thanks for any insight - James
For this you really need to talk to your real estate lawyer. You may have some recourse against the buyer but it may not be worth the effort to pursue it. That they have not brought the cheque does mean that the agreement is voidable at your discretion (under the current Laws, in Ontario 2007, the buyer has 24 hours to provide a deposit cheque "upon acceptance" unless otherwise stated in the agreement.
One concern I have with your question is that you have said it was "accepted and signed back". Only one of these two options can happen as a sign back has changes. If you accepted it the agreement would only need the other parties acknowledgement that it was accepted prior to the irrevocable time.
Either way you should have your lawyer review the agreement and advise you. With no deposit you are probably better off just letting it go and moving on to other offers since you could end up spending more than the difference, between the current agreement and any future agreement, in legal fees and you will still have the risk that you can't get any compensation from the defaulted buyer.
Hi, great article ... I have a followup question b/c I find myself in this situation as a seller:
1/ If the buyer agrees to release all or part of the funds from the deposit is it then automatic that the buyer is off the hook for future actions (ie. isn't responsible for the difference if I resell for a lower price) ? Or, would this be a clause that the buyer would put in the release agreement in an effort to get the buyer to take the deposit (some or all) and avoid having to go to court. Ie. the seller is waiving the deposit but saying that by me agreeing to do this right now you can't sue me later for extra costs. The alternative is that the seller doesn't give up the deposit and your forced to sue them.
2/ Under what conditions, if you have to sue to get the deposit, would the seller not get the full deposit back. Assume that no fraud or misrepresentation or physical house problems have occured - ie. the seller couldn't close strictly b/c their financing committments changed.
3/ Under what conditions (same assumptions as above) would the seller not be able to sucessfully sue for the losses if the later resale of same property was less than the original agreement minus any deposit that the seller received.
4/ Can the seller sue for legal costs incurred for suing for the deposit and/or resale losses ?
5/ Can the seller sue for other costs outside of legal and resale losses ? Such things as heat/hydro/taxes/etc while the house is actively being listed for resale ? I've already rented a condo assuming that the house sale would go thru so now I have my condo rent in addition to maintaining the (now empty) house expenses until it is resold.
Mark,
You should really talk to a lawyer regarding all of these questions especially before signing a mutual release form or anything releasing the deposit in any way.
All of these questions have so many factors effecting the outcome that even a lawyer would be hard pressed to give you a firm answer.
To the best of my knowledge you can sue for any expenses that you would not have incurred had the sale closed and it was solely the Buyer's fault for not closing.
If the Seller is in any way fully or partially responsible for the sale not closing then the amount that the Seller would receive would, most likely be reduced and the Buyer could be rewarded their deposit back plus legal fees etc.
That said, any legal outcome is subject to the judge sole opinion of the individual case and any evidence provided. A lawyer should be able to research the presidents in past cases to advise you as to your chances of winning a law suit for your particular situation.
thank you for your quick reply. I really appreciate it (it helps to alleviate a very stressful situation).
thank you for your quick reply. I really appreciate it (it helps to alleviate a very stressful situation).
thanks for your answer, agree, lawyers are always the people to talk to in these circumstances.
Thanks
Mark
Post a Comment