When you sign an Agreement of Purchase and Sale in Ontario you’re signing a legal contract. The vendor (seller) promises to sell the property listed in the Agreement, and the purchaser (buyer) promises to buy it for a certain amount of money. These contracts may have a lot of conditions attached to them, or they can be relatively simple, but once the conditions are met both parties are locked in to their obligations to one another. Prospective real estate buyers and sellers in London, Ontario and the surrounding regions sometimes ask us what the consequences of backing out of a real estate deal in Ontario can be (whether by choice because they change their mind, or involuntarily because, for example, their financing doesn’t come through).
A recent case out of Toronto provides a sobering example of what, exactly, might happen if you don’t follow through on your Ontario Agreement of Purchase and Sale.
A GTA couple sent a $2.25 million offer in on a property in Whitchurch-Stouffville in the spring of 2017. They had essentially been caught up in a bidding war after being told that the property (which was only listed at $2 million) already had multiple competing offers on it, and that their original offer of $2,050,000 was too low. The offer for $2.25 million was accepted by the seller.
When the residential real estate market is a rising market, most people – perhaps with the exception of first time buyers, are happy homeowners and investors. When the market turns and drops, it is not for the faint of heart. The facts of this case tragically demonstrate how one family, presumably desperate for their dream home, became embroiled in a bidding war and overextended their ability to finance the purchase price of that dream home. – The Hon. Mr. Justice Mark Edwards
Once the buyers cooled off and realized they may have overpaid for the property, they chose to back out of deal. You will see local media reports about this case tell you that they chose to “pull their offer”, but what all Ontario homebuyers need to understand is that generally once an offer is accepted, it is no longer an “offer” – it has already become a contract.
In this case, the couple failed to secure the financing required to purchase the Newmarket property, and were not able to make all of the required deposit payments. Even though they reached out to the real estate agents they had been working with to explain the situation, and even though they spoke to the sellers directly and in person to ask them to consider their situation, the sellers directed to the buyers to their lawyer. It turned out that since the initial bidding war, the property had actually dropped in value and the sellers were no longer able to find a new buyer to pay anywhere close to $2.25 million. In fact, the property had actually dropped below the two-million-dollar mark by the summer of 2017, and the sellers ultimately only received $1.78 million for it. While that is quite a lot of money to most people, it is also a significant drop in value and loss of money for the sellers.
An Ontario Superior Court judge ultimately ordered the couple to pay the sellers $470,000 which is the difference between what the couple had agreed to purchase the home for, and what the sellers were ultimately able to get for it after the couple backed out of the deal.
The lesson here is this: When you make an offer on a real estate property in Ontario – whether you’re in London, Toronto, or anywhere else in the province, you are putting a legal offer on the table, and once it is accepted by the seller, you have a binding legal contract. If you waive financing conditions, or agree to a closing timeline that is shorter than you need, or if you overextend yourself on the purchase price you run the very real risk that the seller will enforce the contract in court and you could find yourself on the hook for damages which could include the difference between what you agreed to buy the property for and how much the seller gets from the next person who steps in after you back out.
Signing an Agreement of Purchase and Sale is a big deal. Like any other contract, it shouldn’t be entered into lightly or if you’re not certain that you can meet the terms and conditions it contains.
Daley & Associates has London Ontario Real Estate Lawyers ready to help you close your real estate deal. Call us at 519-204-7128 whether you’re selling or buying!