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Almost every day I receive calls from buyers who are having a tough time closing their real estate deal. It is a combination of either not being able to sell their existing home for what they expected, to the lender re-appraising the property they bought lower than what they paid, resulting in a lower mortgage being approved. Either way, the deal cannot close without further negotiations. Here are XX things to remember, whether you are a buyer or a seller.
- No situation is the same so there are no automatic solutions
No two buyers are in the same position, as are no two sellers. Sellers who need the money from their sale to close a purchase may not have the same leverage on the buyer who cannot close as a seller who is not buying right away, or who has already purchased with bridge financing. Similarly, when your buyer is a first time buyer with little down payment, a seller’s chances of recovering major damages in a lawsuit are far more remote as when the buyer has assets, including an existing home with lots of equity. You need to understand exactly where you stand before deciding what course of action you want to take
- Whenever possible, keep the deal alive
In my experience, keeping a deal alive, no matter what the cost, is still better than cancelling and going to court. It has always been my experience that whenever deals break down and end up in court, only the lawyers win. People just don’t appreciate the time, costs and stress of a real estate lawsuit. It is brutal on everyone, except the lawyers, who always get paid in advance.
- Forget about blaming your real estate agent
When deal go bad, it is easy to try and blame your real estate agent for your misfortune. In my experience, this is rarely the case. It is not the agent’s fault a buyer put in an offer without any conditions during the crazy bidding wars we witnessed just a few months ago and now cannot close. In addition, buyers and sellers must remember that while they have to pay for their lawyers, up front, in any lawsuit, the real estate agent has virtually all of their legal fees paid for, through their insurance. This is also important for real estate agents to remember whenever a client threatens to sue you as a result of their troubles. They are just trying to bully you. Once they see the costs of litigation, they almost always back down.
- Remember what to ask for in an extension
If you are going to agree to keep a deal alive by extending it, sellers should try and ask for 2 main terms of any extension. The first is an additional deposit, usually non-refundable, to be paid to the seller immediately and to be credited to the purchase price on closing. This is not a penalty but the seller will be able to use these funds to help pay for unanticipated costs they incur as a result of the extension. Also ask for interest on the balance due on closing, at anywhere from 3-7%. This compensates the seller for not having the use of their closing balance during the extension period and helps pay extra interest the seller may be paying on their own mortgage.
- Get lawyers involved early in the process
Sometimes you will have no choice but to put the home back on the market, to try and reduce everyone’s losses, without agreeing to a mutual release. This involves a more complicated agreement, as the parties will not want to place any conditions on the listing, such as the deal being subject to a release of a prior agreement, as this may scare away some of the few buyers in this tougher market. This is why you need a lawyer to assist who not only understands the legal process, but also understands the MLS listing and selling process.
Anyone can close a real estate deal. When it gets tough, you need someone in your corner who can get the deal done. With my partners at realestatelawyers.ca LLP, I am delighted to offer real estate closing services all across Ontario, through our 32 offices and mobile sign-up services. If you have any questions about a real estate closing, please do not hesitate to contact me at firstname.lastname@example.org or toll free at 1-888-876-5529.
Mark Weisleder is a Partner, author and speaker at the law firm Real Estate Lawyers.ca LLP. Contact him at email@example.com or toll free at 1-888-876-5529