Careful

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careful1

Jason and Maria are young thirtysomethings who, like most, lust for a house. Four weeks ago they did something they instantly regretted, which this time had nothing to do with blue berries or udder cream.

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Per usual, they spent Sunday going to open houses in and around their Kits hood in Van, then fell in love with a place listed just under a million. Of course they couldn’t really afford it, but that never stopped coursing hormones. By the next night they’d contacted the listing agent, drafted an offer and submitted it. The deposit was $15,000 – part of a downpayment they figured would be $50,000 – and they handed over a cheque when the realtor asked for one. Make it certified, he suggested, since it shows you’re serious. They did.

A day later they’d done some heavy budgeting, gone to the bank to visit their loans officer and, most seriously, emailed me. “Maria really, really wants this house,” Jason explained, “but after thinking about this and doing the numbers, we’re a little scared. Do you think we should just walk away and, like you say on the blog, wait a year?”

Of course you should walk, silly hormonal, self-destructive, irrational people, I said, letting my feminine side show through. Just tell the agent to stop payment on the deposit cheque before it’s cashed and before the vendors have a chance to sign back.

Unknown to me, the sellers immediately accepted the deal, and the deposit cheque had been certified. So when Jason called the agent – less than 24 hours after signing the offer, thinking that he could back out during a “cooling off’ period – as is the case in BC and other provinces with condos (usually seven days to exit) – he was shocked. “You bought it,” he was told. “Congratulations.”

And they did. Closing’s in seven weeks. They’re freaking.

What did the kids do wrong?

First, getting porned up on realtor.ca and then cruising open houses. That’s a given. Second, even contemplating making an offer without having an agent of their own to represent them, protect them and guide them. An experience realtor in a declining market devoid of multiple offers would know purchasers need never cough up certified funds to present with an offer. Plus, he would have suggested an offer with subject clauses providing several escape hatches.

Sure, in hot markets it’s often impossible to have a conditional offer accepted, but those days are gone. Now nobody should  be handing over paper to vendors which doesn’t contain at least a home inspection clause and, preferably, one making the offer null and void if the purchaser is unable to secure exactly the kind of financing wanted within a few days.

That means no funds change hands until the conditions are removed by way of a waiver the buyers sign. At that point it’s a binding deal, and the purchasers are obligated to hand over the deposit. If they don’t, they’re open to potential legal action – which is unlikely to materialize.

The contrast with what Jason and Maria did (or a similar example which was cited in the Toronto Star some days ago) is stark. Once deposit money has changed hands, good luck ever getting it back. No matter if you chicken out, can’t close the deal or lose your job, those funds are probably gone, simply because you entered into a contract and then abrogated it.

Sure, you can sue for its return, but the courts will almost always rule against you, even if the property sells again to new buyers for about what you offered. Contract law’s clear. The party breaking the contract has caused damages to the other party, and pays for it. Most importantly, there is no cooling-off period when buying a resale home, which is why you need an agent ethically bound to represent your interests, or a lawyer to review the offer in advance and advise.

So, here the lessons. Establish a relationship with a trusted agent before you go to any open house, call on any listing, or make an email inquiry. Make it known. Don’t proffer an unconditional offer, ever, unless you’re 100% ready to close the deal. Don’t certify a deposit cheque unless it’s money you don’t need. Always try to solicit a sign-back from the vendor, either by adding in conditions he doesn’t want or lowballing the price. This now becomes an offer to you from the seller, giving you time to think and react.

Most of all, wait. Sure, there are some markets already descending into distress, but the process has just started. After this Spring market’s passed, buyers will rule. So, chill. Revenge is best served cold.

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avatarGarth Turner - The Greater Fool posted Sunday, January 27th, 2013.

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