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April 20, 2018 | The Law

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Four years ago I offered on a quirky building, saw that offer accepted, then had second (spouse-related) thoughts. “What,” she asked, eyes narrowing, nostrils flaring slightly, “were you possibly thinking?”

I slunk away to close the deal, since backing out was not an option. Reputation matters. The day of closing arrived and my money was sitting in the lawyer’s trust account when the call came. “The other side just contacted our office and indicated they will not have the necessary documentation in place to close today,” Peter said. “They’ve asked for an extension.” Good, I replied. Don’t grant it. We ain’t closing.

Legally, they’d dropped the ball. On the day the owners were obligated to hand over the property and the deed, they did not. I walked. Peter asked for my deposit back. They refused. The other side wouldn’t sign a mutual release, and without that, the listing broker (holding the funds, earmarked to cover the commission) told us to get lost.

It took weeks, money and a litigator to secure the refund. The owners then went on to sue their own lawyer for being such a stumblebum he couldn’t close a simple deal on time, and their new lawyer called me to volunteer as a witness. I laughed.

Buying real estate is not always easy, quick or efficient. Most realtors, who prepare a legally-binding contract called an APS (agreement of purchase & sale) have no legal training and may simply download clauses from the provincial real estate association website. What’s in that doc can be hugely important in the event of any dispute. So, kids, never ever ever ever make an offer (or accept one) without having your legal dude look at it first. Also include a clause giving you the right to secure your guy’s approval on any sign-back.

Be aware, too, of how deposits are handled. In almost all cases where a property is listed on MLS the deposit goes directly to the brokerage employing the listing agent, held in its trust account. The money is not given to the seller, or even the seller’s lawyer – unless specially designated. As shown in my little experience above, without a release signed by both parties in the event the agreement goes south, no funds will be released. So a buyer can walk away from a deal and the seller’s left with nothing but legal bills.

These days that’s happening a lot. People who entered into legally-binding contractual arrangements to buy real estate are turning tail. Yesterday’s post mentioned a few examples, like the new-home buyers in Oakville who want out of deals for $1.5 million houses they bought on spec to be built two years hence. They figured prices would continue to rise, but the opposite happened. The new homes have declined in market value (even before being finished) while their resale homes have also plopped. Now as closing day approaches, they’re moaning, whining, barraging the media, blogging, begging the builder and even telling the government to intervene.

Of course, there’s blog dog Derek. His buyer walked after over-paying in a bidding war, got sued when the house was resold for half a million less, and lost. It was a disastrous strategy, all flowing from the naïve belief he could sign a contract, repudiate it and lose only a deposit. Sadly most people cling to the same myth.

Yesterday half those coming to this pathetic blog to comment called Derek a greedy little weiner for going after the buyer and ultimately costing him hundreds of thousands in damages. This seemed to flow from the underlying sentiment that D ‘had enough’ already, still made a profit on his home and should cut the broken buyer some slack. Others defended our blog dog as a hero of righteousness punishing the stupidity and recklessness of a buyer who bid more than he could afford then tried to weasel out of a deal with zero legal justification.

At odds here are the concepts of legality vs morality. Derek was legally correct. The courts said so. Damages were determined and awarded. A deal’s a deal. Honour it or suffer. But was there a moral case for leniency, letting off the hook a guy who epitomized the behaviour that made real estate unaffordable for most families? Do you turn the other cheek? Weren’t both parties acting in their own self-interest?

Morality is fluid, so we need laws. When a beater house costs a million, involves extreme leverage and takes decades to pay off, the legal system exists to protect both buyer and seller. So if you can’t afford a property, don’t offer. If a bidding war erupts, go home. If you panic later, negotiate, and pray the seller’s lawyer is a doofus.

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April 20th, 2018

Posted In: The Greater Fool

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