A flurry of residential real estate activity erupted over the last several years in B.C., resulting in competing offers, bidding wars and, often, astronomical prices. Fearing home prices would continue to escalate, eventually pricing them out of the market, many buyers jumped in, often presenting offers above asking and without conditions. Some buyers end up running into problems with financing and look to get out of contracts of purchase and sale. Other buyers realize that their dream house is actually a nightmare.
We often get calls from people who are either looking to get out of their contracts of purchase and sale or sellers who are asking about their rights and how to enforce them.
In most markets, buyers will choose to make a contract of purchase and sale conditional on a satisfactory home inspection, but buyers cannot back out of a deal simply because the inspection found some issues with the house. Instead, they must provide a legitimate reason why the inspection report or condominium status certificate was too unsatisfactory for the deal to go forward.
A buyer can also cancel if there has been substantial damage to the property before closing, such as a flood that resulted in damage that has not been repaired.
Another way a buyer can back out of a deal is if they can show that the seller knowingly misrepresented the property in some material way — perhaps by not being truthful about whether the property had ever experienced fire, flood or serious mold issues. $10,000 of flood damage in the basement of a $2-million house might provide the opportunity for discussions on holdback provisions, but they won’t get the buyer out of the deal.
At the end of the day, there really is not much room for buyer’s remorse in real estate. Once both the buyer and the seller sign a purchase and sale agreement, they have entered into a legal contract. Once the agreement is signed and it is not conditional or the condition has been waived, both parties are stuck with that agreement.
If a buyer does choose to back out of a deal, the seller can sue that buyer if they go on and sell to someone else for a lower price. In that case, the seller can sue the first buyer for the difference in price, though it’s worth noting that going to court will incur its own costs.
The seller can be at fault for breaching a contract of purchase and sale if they back out of a deal due to regrets about selling their property, or where they feel like they accepted too low of a bid and could obtain a higher one. While there aren’t as many risks to a seller who breaches an agreement, the buyer can sue the seller for damages, such as an increase in market value of similar properties in a rising real estate market. The buyer must be able to prove the specific monetary amount of these damages.
The buyer can seek an order for “specific performance” from the Court that triggers the completion of the transaction. This remedy is only available if the buyer can prove that the property is unique and that a substitute is not readily available. Because this is a subjective perspective, this is usually very challenging to prove in Court.
Notwithstanding the various remedies available to the non-defaulting party to a transaction that does not complete, uncertainty about what to do as a result of the collapsing transaction and navigating the Court process is a stressful and wearing ordeal. In our view, the best way to ensure that the stress and frustration is minimized is to engage one of the lawyers at Hoogbruin & Company, at an early stage, to ensure that the process is handled in as efficient and strategic a manner as possible.