It used to be that you could buy a house on a handshake or with a $500 deposit. You can still do that in certain places, but not in Toronto. It’s now not uncommon to see deposits of $50,000-$100,000 or more. While this could be seen as a somewhat sad comment on the morals of our society, large deposits have become necessary from a business point of view. Sellers require the additional security that large deposits provide to ensure that buyers are serious about completing their deals. If a buyer doesn’t close, the deposit may be forfeited. This brings us to the subject of this newsletter – the dreaded deal that doesn’t close.

Although countless legal texts and court cases involvethis subject, it’s a topic that most people, including real estate agents, prefer to avoid. Who can blame them? It doesn’t happen that often, it’s difficult to explain and it’s the type of thing that we think (and hope) will never happen to us.

The reality, though, is that it is not a subject to be avoided. Especially if you’re a real estate agent whose clients will depend on your advice and skill to help them if their deal doesn’t close. Fortunately for my clients, I’m very familiar with this subject because I spent a lot of time on it when I practiced law.

There are no statistics recording the percentage of deals that don’t close, but it seems to me that it has been happening with greater frequency lately. Whereas I was only involved in one deal that failed to close during my first eighteen years in the business (my clients rightly decided to back out of a deal when a new survey showed that the property they were buying was not nearly as large as the sellers claimed it was), in the past year I’ve been involved in three deals that either didn’t close or had complicated issues that needed to be resolved to permit closing to take place. There are probably a million things that can go wrong with a deal, but I’ll tell you about the three problems that arose in deals with which I was involved in the past year just to give you an idea of the types of things that can go wrong. (Names and addresses have been intentionally omitted as a matter of personal
privacy.)

Deal A: My clients sold their home in February with a June closing. In April, the buyers’ agent called me to say that his clients hadn’t sold their own home so they wanted our deal cancelled and their deposit returned. Simple as that. I told him that it was not as simple as that because his clients had entered into a firm and binding legal agreement and could not just change their minds without suffering the consequences. I suggested that he have the buyers’ lawyer contact the sellers’ lawyer to discuss a resolution. My clients needed the funds from this deal to pay for the new home they had bought. If this deal didn’t close, they wouldn’t have been able to afford their new home and, presumably, the sellers of their new home wouldn’t have been able to afford their new home and so on down the line. When one deal doesn’t close, it often causes a domino effect that can injure many parties and result in many lawsuits being initiated. In this deal, the lawyers agreed that the
sellers would keep $70,000 of the $100,000 deposit and would let the buyers out of the deal. We then put my clients’ home back on the market and sold it almost immediately for $24,000 less than the original sale price. This $24,000 loss was more than compensated for by the $70,000 of deposit money which my clients retained, but I’m sure they would have preferred to live without the stress of their deal falling through and the hassle of having to put it on the market again. (In case you’re wondering, in most cases real estate agents only get paid when a deal closes, so in a case like this, we list and sell the house twice and get paid once.)

Deal B: Corinne and I were hired by a seller who selected us partly because there were potential issues with the sale and she thought it would be helpful to have an agent with legal experience on her side in case something went awry. Very prescient of her. There were two offers for this home (remember this). The better offer of $1,000,000 was accepted. The buyer provided an uncertified deposit cheque with his offer and, pursuant to
the agreement, was required to deliver a certified deposit cheque the next day. This type of arrangement is not at all unusual. What was unusual was that the buyer’s agent called the next day to say “My client has changed his mind. Let me know when I can pick up the uncertified cheque.” Well, as in Deal A, you don’t just get to change your mind. It’s not as simple as that. Following protocol, Corinne went to the bank to try to get the cheque certified, but the buyer, trying to protect his losses, had called the bank and given instructions to stop payment on the cheque. Our client probably could have sued on the agreement and on the cheque, but that could have been a long and costly process which
wasn’t necessarily in her best interests. The ideal result would have been for the buyer to complete the sale for the agreed upon amount of $1,000,000. The second best result would have been to obtain an offer from another buyer for $1,000,000, but given the interest level already exhibited in the property, we were of the opinion that this was unlikely to happen, with one exception. The second buyer’s agent had called to say that her client was still interested in the property. We informed her that it was possible that the first offer might fall through and suggested to her that, if her client was willing to increase his price to $1,000,000, he might wish to submit an offer at that price conditional
on the first offer falling through. That way, if the first offer did in fact fall through, the seller might just be willing to accept the second offer without putting the property back on the market because there would be no shortfall in price since both offers were for $1,000,000. The agent for the second buyer followed our suggestion and, as it turned out, the first offer fell through and the second buyer got the property for $1,000,000. After a couple of anxious days involving discussions with us and her lawyer, the seller was happy to have sold the home for the multiple offer price of $1,000,000.

Deal C: This deal was so complicated that someone might write a book about it one day. Essentially, in the course of the negotiations, the sellers made a passing comment that there was an upcoming committee of adjustment hearing involving a very minor matter that would be of benefit to the property. To be on the safe side and to protect my buyer clients, we put a condition in the offer allowing my clients to find out more details about the hearing so they could be satisfied that it was indeed a minor matter. When the
buyers’ lawyer looked into the hearing, she found out that while the hearing was a minor matter, it was required because of a major problem underlying title to the property. Simply put, as a result of the sellers having owned the adjacent property at the same time as the subject property and having failed to correctly sever the two properties according to the Planning Act, the sellers did not have title to their property. They had nothing to sell! The sellers and their lawyers refused to acknowledge that there was a problem. The sellers’
agent wasn’t really involved at this point. It was left to my clients’ lawyer to uncover and explain the problem to everyone. The sellers offered my clients the option of getting out of the deal and having their deposit returned to them in full, but they really liked this home and were willing to work through the difficulties to make sure the deal was completed and they received good and valid title in the process. My role in all this was to spot the red flag at the beginning, draft a clause for the offer that would protect my clients and then help
explain the process and related options to them and to communicate with their lawyer and the sellers in a manner that would keep everyone calm and focused on solving the problem at hand. It wasn’t easy because no one wanted to deal with this problem. I know that I spent more time on this deal providing “counseling and diplomacy” services after the agreement was signed than before, but sometimes that’s what’s required. Some agents follow through all the way to the end and some disappear after the sold sign goes up. I don’t for one minute consider myself to be a hero, but having the experience to understand the concepts and process involved was exceptionally helpful in insuring that this deal was
completed and my clients got the home they wanted.

So why am I telling you all this? It’s not to scare you because there’s no need to panic. Most deals close successfully. It’s because whether you’re a client to whom I’m giving detailed advice or a non-client reader of this newsletter, it has always been my goal to provide you with unbiased information that will help you to make the decisions that are right for you.

I know that some of you choose as your real estate agent someone who is your friend or relative, who sends you the most mail, who called you most recently, whose sign you see most frequently, who promises you the highest price or who charges you the lowest commission. That’s not the way I would choose a real estate agent to help me with what is really a complicated financial transaction involving large sums of my hard earned money, but we’re all different and have different ways of doing things. There’s nothing wrong with that, as long as you know what you’re doing and why you’re doing it. I’ve often mentioned that your choice of agent will have a greater impact on your results than any other factor. I’ve talked about the significant benefits of a good agent’s negotiating abilities, neighbourhood knowledge, pricing strategies, advice regarding housing options and more. Now you can add one more benefit to the list. As the market becomes more complicated, don’t you want an agent who has the experience and expertise to help you if it looks like your deal isn’t going to close?