I think this blog post will help determine the phrase “grey area.”
I also think it’ll call into question integrity, and good faith, but once you read the legalese that’s present in a typical condition in an Agreement of Purchase & Sale, you’ll see that anybody can get out of any deal, via any condition, for any reason.
So what good is a “Financing” clause if you can change your mind and get out of the deal for any reason?
Wait. I think I just answered that…
Sometimes to put our market in perspective, you have to look at how things are done in other markets.
Whenever I have a client come in from the United States, they always ask me about “proof of income” or some sort of “mortgage verification.”
I tell them, in short, there is none.
They’ll ask, “So when I make my offer, do I need to provide a letter from my wealth manager, or a bank statement, or something to show I have equity?”
No. You don’t.
They’re often shocked at how sellers and listing agents simply “take the buyer at their word,” but again, every market is different.
When it comes to home inspections, it’s the same thing.
People from other markets ask things like, “Would this house pass an inspection?”
It’s not a pass or fail; far from it, in fact.
Home inspectors inspect, then they fill out sheets, tick boxes, and call it a day. They wouldn’t offer a “pass or fail” even if you asked them, for fear of liability.
So when an out-of-market client asks me, “If the inspector doesn’t give a ‘pass or fail,’ then what determines if we go through with the deal?”
In short: you.
In fact, you determine whether you go through with any deal if it’s conditional, and at no point do you have to provide a reason, or an explanation.
Here’s how a typical clause is worded:
This offer is conditional upon the Buyer’s lawyer reviewing the Status Certificate and Attachments and finding the Status Certificate and Attachments satisfactory in the Buyer’s Lawyer’s sole and absolute discretion. The Seller agrees to request at the Seller’s expense, the Status Certificate and attachments within days after acceptance of this Offer. Unless the buyer gives notice in writing to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 5 p.m. on the fifth day (excluding Saturdays, Sundays and Statutory Holidays) following receipt by the buyer of the Status Certificate and attachments, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.
“Sole and absolute discretion.”
That sounds pretty iron-clad to me!
There’s no reasoning needed here. “Absolute” is absolute.
And the condition is written, “Unless the buyer gives notice…..this Offer shall be null and void.”
So the Agreement of Purchase & Sale automatically terminates, UNLESS the buyer gives notice to the seller that they’re “waiving” the condition, or that condition has been “fulfilled.”
Most conditions are written the same way, whether it’s for financing, home inspection, or review of the status certificate (the big three).
So now consider how “absolute” gives the buyer power, and then imagine what the buyer could do with that power.
Can the buyer change his or her mind? Sure. Just don’t waive the condition.
Can the buyer find fault with something that is faultless, ie. a perfect condominium with the best finances anywhere in the city, but the buyer is a lunatic and thinks the reserve fund should have $10,000,000 in it? Sure. Just don’t waive the condition.
Can the buyer include only a condition on home inspection, find out he or she can not get financing, and then get out of the deal by using that condition on home inspection? Sure. Just don’t waive the condition.
“Sole and absolute discretion.”
“Unless the buyer gives notice…..this Offer shall be null and void.”
It’s iron-clad, folks.
Any buyer, can get out of any conditional agreement for any reason, with any condition. And I shouldn’t even say “reason,” since none needs to be given.
Let me tell you a story; a painful one for myself, a couple of sellers, and a couple of agents, but a story that takes place six years ago, and and I haven’t had contact with these folks since, so I think telling this ambiguous story is fair game.
“Roger and Margaret,” we’ll call them, wanted me to find them a North Toronto home for them and their growing family – three kids between 8 and 13.
We looked at a lot of homes; pretty much every home that came out in their desired neighbourhood, and they always had some sort of objection. Each one was stranger than the next.
Strange. That’s a good word to describe the situation, as well as Roger and Margaret. They were strange. They were nice, in fact, they were incredibly pleasant, kind, courteous, and always thankful. But they were strange. Weird, even.
We finally found a house on which they wanted to bid, and even though there was an “offer date,” they wanted to include a condition on home inspection. It was strange, since there was a pre-inspection from Carson Dunlop, and they had eight days to conduct an inspection of their own, but they insisted on making a conditional offer.
I never thought the offer had a chance. I told them as much. If this was 2016, I wouldn’t bother presenting it. But this was 2010, the market was really hot, but not quite like it is today, and there were only three offers on this house, around $1.3M, and ours was the highest.
The highest offer, but conditional.
And as luck would have it, the sellers decided to accept our conditional offer, and take the risk that we wouldn’t follow through with the deal.
All along, I just had this “feeling” that something was going to go wrong. Maybe I was pessimistic, or maybe I had a good read on these things, but I just felt Roger and Margaret were really strange about the whole thing.
We hired a home inspector, and did a 4-hour walkthrough of the home. The inspector gave the house a rave review, and I said, “Should we sign the waiver?”
They were really coy, and said, “We’ll get back to you tomorrow. We want to think about it.”
There was nothing to think about, in my mind. The house was flawless.
I had never had a client say, “We’ll get back to you,” and they wanted to “think about it” after they had already seen, offered on, “won,” and inspected a house.
When somebody is the only person to ever do something, that usually raises a red flag with me.
They did get back to me the next day, but only to say that they needed another day to think about it.
We had a 3-day condition on inspection, and they were intent on using all three days.
That too raised a red flag in my mind.
The third day came along, and Roger called me to say that they were not going to go through with the purchase.
I was disappointed, but don’t think it’s because I wasn’t getting paid. It’s because I gave the listing agent “my word” that these were honest people, and he trusted me, and turned down two firm offers. I also knew the sellers as their kid was in my sister’s class in grade-school, and they seemed so proud of me when I walked into their living room, ‘all grown up,’ to sell their family home.
The subsequent conversation with Roger was bizarre.
He didn’t mention anything about the house they’d just bought, and walked away from, but rather jumped right back into the housing search.
He said things like, “I think we’d really like a house without a pool.”
That was incredibly bizarre, since the house they just bought, HAD A POOL!
I wanted to say, “Roger, did you happen to notice that large body of water in the backyard? That wasn’t from the thawing snow; that was a F***** pool!”
I didn’t understand. How could they conditionally purchase a house with a pool, and then three days later, say “We want to look for a house with no pool?”
It wasn’t that they decided in those three days that they didn’t want a pool, but rather, they were strange. Weird. Bizarre.
About five weeks later, we found another house we liked, and this time, there was no offer date. Remember those days?
We bought the house, again, conditional on home inspection, and naively, I figured that “it couldn’t happen again.”
This house was even better than the first one. It was 2-years-old, flawless, and we got it at a great price.
The inspection turned up absolutely, positively, nothing you could complain about. A downspout needed to be extended? Okay, great, that’s ten bucks. A small crack in the exterior stucco needed to be filled in with silicone? Perfect, that’s another five bucks.
Once again, Roger and Margaret took the full inspection day, the second day, and the third day of their condition to “decide.”
The listing agent was calling me incessantly asking why the hell they needed three days, but it was worst than that: they left it to the very last minute.
4:59pm on a Friday, and I kid you not, folks – it was ONE MINUTE before the 5pm deadline, Margaret called me and said matter-of-factly, “We will not be proceeding with the purchase of 123 Smith Street….”
It was bizarre. Strange. Weird.
It was messed-up.
These people were lunatics. That’s the only explanation.
They were crazy people who liked bidding on houses. It had to be the explanation!
And the fact that they didn’t come to this decision on Wednesday, or Thursday, or Friday morning or afternoon, but rather at 4:59pm on Friday, told me something was really amiss with these folks.
This time, however, the seller and the listing agent didn’t go down without a fight.
They simply refused to return Roger and Margaret’s deposit cheque for $100,000, and told them “Take us to court.”
My hands were tied on this – the deposit is held in the listing brokerage’s trust account.
Roger and Margaret were 100% justified, legally, and contractually, in their decision not to proceed with the transaction.
But ethically? Morally? Logically? They just bought a second house in the same area – a small community where everybody hears what goes on, and walked away for no reason.
The listing agent had heard through the grapevine about Roger and Margaret the first time this happened so she felt that her actions were justified in not returning the cheque.
Now, those of you who understand real estate and/or contract law know that a seller can’t sell their house twice to two different people, and a brokerage can’t hold two deposit cheques for the same property. So by holding Roger and Margaret’s deposit cheque hostage, they were ensuring they couldn’t accept any subsequent offers.
It took almost four weeks for the listing brokerage to return Roger and Margaret’s cheque, and even though they were my client, I couldn’t help but feel they got what was coming to them.
We parted ways, after that. I told them they needed a “fresh set of ears,” but they never ended up buying. They still live in the same house they were in when I first met them.
Roger and Margaret proved that any buyer, can get out of any deal, for any reason – even no reason at all, if they want to…