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…
at 9:11 am
I know people like that. They are not strange. They are self-centered a$$holes. I bet you they did not even feel bad about it. So what if they wasted a bunch of time and put the sellers at risk? It was their “right”, they were “entitled”, and you “owe” it to them to do what they want!
I can just imagine how many times they disappointed their kids.
“Hey kids, we are going skiing for spring break!”
“Actually, we thought about it, and we would rather take you to Hawaii! Yeah!”
“Oh, oh, no, let’s go to Disney World!”
“Well, we left it too late so we are staying home”
These clauses should either become plain old “cooling off period” clauses, or actually put some teeth in them. It’s extremely unfair to the sellers who may have already bought their next home.
at 11:28 am
Lmao!. your articles always make me laugh man. I’ve been there too.
at 11:43 am
I would have enjoyed an ending which they never received any money back but yours will do.
at 4:42 pm
This may be news to those who use agents as they probably don’t bother reading the contract. When I sold my place I did notice that clause and wondered why people bother with all the various conditions. It is unfortunate because it puts undue stress on the sellers especially when you commit to buying a new condo/house and sell when it’s firmed up. I included a unique condition in my offer on one of my condos but it had a specific purpose. i wanted the owners to deliver something extra and I wanted them to put in a serious effort. In the end, they were not able to deliver, though they tried hard, I waived the condition the last day.
Also, there is a perception that there is something wrong with the house because once it goes back on the market other agents will read into that and may reduce the offer or not even submit one. It would spook buyers and could cost the seller a significant amount. And yet in this case there was nothing wrong with the house. It’s also very unilateral as the seller can’t back out at all.
I like it how this nice, pleasant couple turned weird, bizarre, and crazy in a space of a few paragraphs. Some people just don’t consider the other person, whether through ignorance or because they think they are perfectly within their rights. Some people are just simply indecisive and delay to the last minute to make a decision. I’m sure the agent thought my condition was unusual and in turn thought that I was strange but I didn’t care as I had my reason. I’m sure the seller was stressed out during the condition period but that’s part of the game.
You know David I find these comments about your clients in very bad taste. That kind of language would be acceptable and understandable at the bar with your colleagues after the loss of the deal, but to put it out on your blog I think it does damage to your reputation. I’m in a similar business where sometimes I put a considerable effort in, at some cost and the person decides to walk. It’s all part of the business and we have to accept that we lose some deals.
at 3:11 pm
I couldn’t disagree with you more. David’s sterling reputation is what it is because he shares stories like this, whereas no other agent would. He consistently gives us a REAL look at an industry which is incredibly close-guarded.
And if you read what he wrote you’ll see he didn’t care about “the loss of a deal” but rather the other parties involved.
at 9:23 pm
@Daniel I did read the article (the first part of my comment should be a clue). I stated my opinion which you can disagree with as you wish. In my eyes, his reputation is tarnished, to follow your silver theme, after disrespecting his clients, and not for the first time I might add. I seem to recall he used this couple as an example before. I’m just trying to be helpful and point out that he may want to tone down his comments about clients if he wants to drive business through this blog. It’s no skin off my back though.
at 2:31 pm
This is hilarious! Condodweller is telling David how to run his website!!!
Dude, who do you think he knows better how to run David’s business: a) David, b) you?
If David didn’t consistently give us the inside scoop on real estate through stories like this, he would be like every other useless real estate agent out there who offers no opinion, analysis, insight for value whatsoever.
Tell a guy who gets ten million hits how to “drive traffic to his blog.”
You have a really high opinion of your own opinion!
at 9:05 pm
+1 RPG and Daniel – Here’s a thought: vote with your vote/mouse whatever. If you don’t like David’s blog, don’t visit, don’t post, don’t read, move on with your day.
at 5:12 pm
There has been much written about the plight of the buyer in today’s market, but personally i have always found selling (regardless of the market) far more stressful than buying. This story is just one of the reasons why.
As a a seller if you accept an offer with conditions, you’re in limbo until they’re waived. Some might say that the moral of the story is to simply not accept offers with conditions. True, BUT even more stressful is that a buyer can walk away even if his offer contained no conditions or even after he waived all conditions. He simply doesn’t have to close (then you’re totally F’ed). You can’t relist your property until you return their deposit, and you can’t keep their deposit without going to court and winning it.
at 5:14 pm
How much of this could be avoided if people would simply negotiate better terms than the ‘standard’ terms inputted by their RE agent?
If you have firm offers but a conditional offer is the highest, insert a clause that the buyer will forfeit x% of the deposit if the deal doesn’t firm. If people know that failing to close on a deal would cost them a few thousand dollars, you wouldn’t have people backing out for no reason.
at 9:30 pm
@Negotiator That’s a great idea which in today’s hot market might actually work. Considering it’s the buyer who comes up with the offer, there is nothing stopping the seller to add an amendment and if it increased the buyer’s chances why would they refuse? The trick is building in a “passing” mark for each condition to allow the buyer to back out for a legitimate reason. It’s easy enough to show a refusal letter from the bank but as David says house inspectors don’t typically issue a pass/fail.
I don’t know how it could be implemented but I like the idea.
at 6:16 pm
We once had the opposite scenario. We put an offer in on a house we loved. The seller came back with a counter offer which we accepted. The seller then got cold feet and decided he did not want to sell. While technically there was an accepted offer and perhaps we could have tried to force him to go through with it, we decided to just back away – they did end up selling the house, but it was a good 2-3 years later.
at 2:00 pm
This is not true 🙂
at 3:42 pm
In a different country they would be dragged out in the open a had their asses kicked big time
at 6:05 am
Oh my God you wasted that much of my time telling me nothing . I asked one question yes or no and you reply with pages of worthlessness to spew out… no wonder so many people hate that internet.
at 2:24 am
Any buyer must still follow through with their Subject to’s. For instance, they have an inspection clause, they have to complete an inspection to remove that clause or not remove the clause. You cannot back out if you have not completed your subject to stated on the contract.