There are 2 situations that we have recently been experiencing with clients more frequently and with greater consequence as a result of recent housing and real estate market uncertainties:
1) A client makes a purchase and is having difficulties selling their current house, has sold but at a drastically reduced price, or their sale is falling apart due to lack of funding on the other side; and,
2) A client has signed an agreement to purchase, but the bank’s appraisal of the property is less than what they have agreed to pay for it.
Use the following tips to help prevent and/or recover from these unfortunate scenarios.
- Try to take emotion out of the equation. Seeing the purchase/sale of a house for the TRANSACTION that it is, will help you to make sound, safe decisions.
- No unconditional offers. Under no circumstances should any offer be made UNCONDITIONALLY (ie. without inspection, appraisal, title search, or condition of selling/financing). Having proper conditions in place helps to protect both sides of the deal, not just purchasers.
- Get a home inspection. Especially if one hasn’t been pre-done by the seller. After all, you wouldn’t buy a car, particularly a used one, without test driving it first to make sure it runs as expected.
- Base your mortgage on an actual appraisal, not just pre-approval figures. If the lender's or mortgage insurer's assessment determines that you overpaid, or the property has faults, your pre-approval can become void or your final mortgage amount can be less than expected.
- Involve a lawyer early. Lawyers can provide insight into the history of the property’s ownership as well as review initial offers for areas of concern.
Plan B Options
- Ask for a closing date extension. First and foremost, ask for more time to secure funding or complete your sale.
- Refinance from other asset pools, such as cottages or recreational properties.
- Vendor Take Back Mortgage. Consists of the seller offering to lend funds to the buyer to help facilitate the purchase of the property.
- Private 2nd Mortgage. While arranging a second mortgage with a private lender will likely cost more than receiving lending from a financial institution, it will still cost less than what might happen if forced to walk away from a signed agreement.
Legal ramifications should you walk away from a signed purchase agreement
- Immediate loss of initial deposit
- Potential for being sued for the difference between what you agreed to pay and what the seller is able to get with a new deal (if the new deal is less)
- Possibility of being sued by realtor for lost commission(s)
- Responsibility to cover additional legal and carrying costs
If you have run into the above issues, or for more information about how we can help with your home, your business, or your future, feel free to call 905-336-8940 or e-mail firstname.lastname@example.org.