While it might be fair to refer to the old adage, “If something is too good to be true, it probably is,” right about now, that’s not exactly what happened with this offer…
Recall that when we parted ways on Monday, my colleague and I had a condo listing that we thought would be quite smooth, but was proving to be anything but. Our first sale, which wasn’t conditional, but rather was firm, had fallen through when the buyer got cold feet. We hadn’t even signed the mutual release yet, and low-and-behold, we received another offer on the property!
The offer was exceptional! It was not only over the list price (when there was essentially no reason why somebody would do that…) but it was unconditional, with a deposit cheque in hand.
Sign that baby up, right?
No conditions therein, but unfortunately, there was a clause that would preclude us from accepting.
The clause was regarding the existence of Kitec plumbing, namely that the seller would warrant that there was none. This is a standard clause for many condo purchases, but in this case, rather obviously, it was anything but standard.
This was clearly a miscommunication (to be fair to ourselves, perhaps I blame the buyer agent, since we gave her a copy of the Status Certificate, which announced the existence of Kitec in bold font), and it meant that the seller couldn’t accept this offer in its present form.
I always tell my colleagues, “Don’t jump the gun and call the client until you’ve gone over everything, twice!” This offer looked great from a cursory viewpoint, and from the buyer agent’s email, which basically said, “Here you go! $610,000, no conditions, cheque in hand!” But that’s why we read the damn offer! Having just seen a colleague forced to purchase a $3,500 hot water tank because he didn’t read a clause in the offer before he told his clients to sign it, it certainly pays to read twice!
Our first move was to call the buyer’s agent, who we’ll call Jessyca, and let her know that as excited as we were to work with this offer, we couldn’t do so because of that Kitec clause. We told her that there was Kitec plumbing in the building, and that it was disclosed in the Status Certificate. She said she would get back to us.
Our second move was to call the sellers, Allan and Frances, and let them know that we received an offer that, unfortunately, had a clause therein that wouldn’t allow us to accept. Then we told them the terms and conditions (price, deposit, closing date, etc.), and let them know that we were working to get an acceptable offer on paper.
We told Jessyca that we would either agree to hold back $5,000 of the sale proceeds for twenty-four months to address the future replacement of the Kitec, or we would just take $5,000 off the top.
I mean, a $605,000 accepted offer was still pretty good, considering we sold this place for $600,000 a week earlier.
Lucky for us, the buyer was into it!
The next day, we signed an offer for $603,000, with a five-day condition on satisfactory financing, but only after we signed a mutual release for the first deal. That buyer-agent was over the moon to finally get his mutual release, and I felt bad for him, I really did. He said he hadn’t slept in a week, and it was affecting his ability to do his job, and his level of confidence in his place in this industry. “You should see my nightstand,” he told me. “Nothing but king cans of PBR and Tylenol.”
Frances and Allan knew that by signing the mutual release for the first deal, and accepting this second deal which was conditional, they exposed themselves to the chance we go back to square one: having no deals. But rather than sign the second offer, conditional on releasing the first buyer from the first agreement, they took the path of least resistance.
We now had a workable deal in place, and we decided to proceed with the hot hand.
In the meantime, I kept talking to my mortgage broker about which lenders would lend on the building, and which would not. Up to this point, we learned that National Bank, Royal Bank, and Scotia would not lend. TD would, but we couldn’t get a straight answer from either CIBC or BMO.
The buyer’s agent, Jessyca, told us that her boyfriend was taking her “some place special” the day after we had accepted the buyer’s offer, and that she would be completely unavailable. This is what she told us; that her boyfriend had told her, to expect to be unavailable.
So you know what that means, right?
He was going to propose!
At least Jessyca thought so, as did Chris, who told me that we couldn’t bother her as she was probably going to be drinking champagne and making phone calls to friends and family all day.
The next day, the buyer’s parents came in to drop off the deposit cheque, and that was a scene.
The mother was a gong-show, giving our front desk crap about how the MLS listing had different information that what was on Condos.ca, and I had to sit her down in a room and explain that Condos.ca isn’t MLS, nor is it our website. She was an absolute crack-pot, and told me, “You need to change this – what’s shown here,” pointing to her iPhone, where some random Markham agent had a website about the building, saying that hydro was included in the maintenance fees! I explained that I was not Bob Smith, Markham real estate agent, and then proceeded to explain to her how the Internet worked.
That experience was neither here nor there, but for some reason I felt like including it, even though that above paragraph does this half-hour interaction no justice. For real.
But now at least, the cheque was handed over, we acknowledged receipt and alas, we finally had a conditional sale with a cheque!
All seemed well in the world once again, and having sold this condo now, twice, we felt confident.
Jessyca indeed went “dark” one day later, having told us that her phone would be off as she spent quiet-time alone with her boyfriend.
Two days later, Chris called me.
“I just heard from Jessyca,” he said.
“What do you want first: the bad news, or the worse news?”
Did it matter?
“The bad news is: Jessyca is not engaged. Poor girl. The worse news is: the buyer isn’t moving forward with the transaction.”
So let’s address the sad news first: it seems as though Jessyca’s boyfriend really just wanted to spend the day with her, at a romantic, secluded setting, with their phones off, and get down on one knee, to tie his shoe.
Jessyca wasn’t a happy camper, and she seemed highly unmotivated to work with us on the problem at hand.
We figured that the problem was financing! We had found a lender that would lend, but none of this mattered.
None of this mattered…………….in a good way? Like, the buyer was paying cash?
None of this mattered…………….in a bad way. Like, well, let me explain…
Any buyer who provides less than a 20% down payment is considered “high ratio,” which is to say that the ratio of debt to equity is high.
A buyer with a 15% down payment has a ratio of 85/15, which is “high ratio” by definition.
And all “high ratio” mortgages must be insured.
The origin of this, and further examination, is yet another topic for yet another day.
But securing mortgage insurance for high ratio mortgages is an absolute must, and, well, guess what?
This building had been blacklisted by CMHC.
This is when “bad” went to “worse.”
CMHC, as many of you know, probably insure more than 90% of the high-ratio mortgages out there. They are a government-run institution, and while there are private insurers like Genworth and Canada Guaranty, most buyers have never heard of them.
Since CMHC had blacklisted this building, and refused to provide mortgage insurance on any high-ratio loans, it meant that the buyer either had to come up with a 20% down payment (which he could not), or secure mortgage insurance through Genworth or Canada Guaranty.
The buyer wanted out, plain and simple.
It wasn’t the fact that he couldn’t get insurance through CMHC, but rather like the first buyer, he was spooked.
I spoke to my mortgage broker who informed me that he was “highly confident” that neither Genworth or Canada Guaranty would insure the deal anyways, since they typically follow the same pattern as CMHC.
So let’s regroup in what was shaping up to be an impossible situation:
1) Most lenders would not lend on this building.
2) Mortgage insurance was impossible to obtain on loans in this building.
This meant that even if a buyer did find a lender who felt comfortable lending on the building, they wouldn’t be able to get mortgage insurance.
Our only hope now was that a buyer, with more than 20%, could obtain a loan through TD, or maybe CIBC who was, apparently, ready to loan.
How’s that for shrinking your buyer pool?
Any buyer with less than a 20% down payment could not purchase in this building.
Any buyer who wasn’t working with TD Bank, CIBC, or a B-Lender could not purchase in this building.
Considering this was an entry-level condo with “first-time buyer” written all over it, the majority of interested buyers would likely have a down payment that’s lower than 20%. We can debate this all we like, but I’m speaking from experience. And even if, say, half of would-be buyers had a down payment in excess of 20%, we’re still losing half of our buyers.
Add in the fact that many lenders wouldn’t provide financing for units in this building, and we were now losing even more buyers.
The situation seemed grim.
We called Frances and Allan and let them know, and they were understandably upset. They had prepared themselves for the worst-case situation, and at least that meant they weren’t caught off-guard.
Chris and I worked the phones and called every agent that had shown the property to try to drum up business.
We put out the word wherever we could – within our brokerage, speaking to colleagues throughout the industry, posting on social media chats and newsgroups, and even going to other condos listed for sale in the area to see which agent’s business cards were on the counter, and calling those agents to let them know about our listing.
Low and behold, we got a callback from an agent a few days later.
She was an older agent with decades in the business. This can either be a nightmare, or absolutely brilliant, for what it’s worth.
We proceeded with kid gloves, and asked, “So can you tell us about your client?”
“She’s downsizing,” the agent told us, and this meant, at least we hoped, that the buyer had a whack of cash.
“Cool, cool…..ccc….cool,” I said, like Andy Samberg, trying to be as aloof as possible.
Perhaps I’m paraphrasing here, but imagine my level of intrigue as I asked, “Sssooooooooo……..like, what kind of down payment does she have?”
“Oh she’s solid,” the other agent told me. “She’ll probably put down three-to-four hundred thousand.”
I would have high-fived anybody at that point. Anybody. If I were out on the street, I’d have high-fived the hot-dog vendor and the homeless guy, multiple times.
This was absolutely, positively, perfect.
After explaining how we had already sold this property twice, both times for the list price or above, and how there was Kitec in the building as well as issues with mortgage insurance, we ended up getting an offer on paper for $601,000, which was shocking.
I’ll be honest, I thought this agent would have stuck it to us and try to jam $570,000 down our throats. But she was looking to “catch more flies with honey,” and her client loved the place. Maybe the buyer wasn’t all that price-sensitive, or maybe her risk tolerance was low. Either way, we now had our third offer, and this one came with a similar five business-day condition on financing.
The wait was long, I won’t lie.
Five days, and over Christmas, no less.
But in lieu of another twist, or an attempt to draw this out any further, I’ll tell you that we did receive the waiver of condition and this deal did firm up.
A firm sale.
On the third try.
Who would have ever seen this journey coming?
Looking back in hindsight, or perhaps some of the readers might wonder, “Is there anywhere that information like ‘blacklisted buildings’ or problem buildings is posted?”
Issues can arise at any time, often out of nowhere.
Lenders can change their criteria overnight. They might lend on a building one day, and not the next. And then two days later, they might lend on it again. This sounds hyperbolic, but it’s true. There’s no way of knowing what a lender will do on any day other than today, and to use last year’s, or last week’s lending criteria is misguided.
In truth, the only way to know if a given lender has a problem with a given building is to ask that lender directly.
The same goes for mortgage insurance.
As for Kitec plumbing, I suppose one could create a database of buildings that had Kitec, and thus buildings where the piping has been removed, and where it has not. Such a list does not yet exist, but even if it did, keep in mind that lenders do lend on buildings with Kitec. Just not every lender, in every building, on every day.
It’s a true case-by-case basis, and that’s the trouble with all of this.
For Frances and Allan, now living in their new home, with the sale of their condo closed, and the sale proceeds in their hands, this is all just a story to tell at a dinner party one day.
I’ve sold a handful of condos twice, but never three times.
There’s a first time for everything, right?Back To Top Back To Comments