I had to laugh. A few months ago I bought a property in the country. Knowing the Toronto market like I do, I was prepared to shell out $50,000 as a deposit with my offer. Before I wrote the cheque I thought I would just ask the listing agent what an appropriate deposit would be. His response…$5K should do it! The experience highlighted the differences between our two markets. One, a fast paced, come hell or high water environment where a big deposit means business, and the other, gentle simplicity where trust is the underlying currency.
The reason I bring this up is that many years ago, at the start of my real estate career, deposits were never really that high. It was always impressed upon me, when I was starting out, that the deposit should at least cover the commission but that guideline was seldom adhered to. Today, the deposit amount plays an intricate role in the purchase of a house. A big deposit, in the form of a bank draft will beat out a small deposit written on an uncertified personal cheque every time. In fact, nothing says ‘I’m serious’ like a deposit of 10% of the property value when offering. With big money on the line, buyers need to know the implications….on the off chance that something goes wrong. Clearly its a lot of money to leave on the table.
What I am inferring here is that the buyer interview just got a whole lot more important. We are long past taking a buyer’s word that they are approved to buy a house. A responsible Realtor needs to do a deep dive during that initial buyer meeting and be prepared to ask some often difficult questions. Buyers have to know that their deposit might be at stake given the fact that there are so many places where things can go south. It’s not just buyer’s remorse anymore, we are seeing deals fall apart because banks are changing financing terms on the fly.
So what can you do to help Betty Buyer? Ask more questions and offer more advice. It’s no longer good enough to ask if she has talked to a bank. Get Betty to provide a letter of commitment from the bank OR get her to talk to YOUR guy. Talk to Betty about the perils of not closing. Explain what happens if the house doesn’t appraise out. Ask if there are sources for her to find more capital (like the bank of Mom and Dad). Talk about closing costs and various taxes she will need to pay. Its time to take the buyer interview to the extreme vetting stage! For some agents it will be a difficult conversation. For others it will be instinctive. But at the end of the day it is not just about all saving you grief and heartache when the deal goes south, its about going the extra mile for your buyer client. As the listing agent, there is extra onus on you to ensure that the buyer is QUALIFIED to buy the home. This means asking the buyer agent questions about their buyer; how long have they been associated? Have they done offers before? What steps did the buyer agent take to ensure the buyer has money to close? I am reminded of a deal I did many years ago that went sideways after an accepted offer. I asked the buyer agent what they new about their buyer and was shocked to hear that they met them at an open house, and didn’t have time to properly qualify them. Hey, not all deals will go according to plan but if you ask the right questions first you eliminate problems down the road.
Mark McLean is the Broker/Manager at the Bosley Real Estate Queen St W office, the Immediate Past President the Toronto Real Estate Board and a director at the Ontario Real estate Association. The opinions expressed here do not reflect the opinions of TREB, OREA or Bosley RE.
What do you really know about deposits anyway? Are you aware of how important the deposit is to an Agreement of Purchase and sale and what happens when the buyer of a property fails to deliver the deposit cheque within the time allowed? These questions….and more will be answered here.
First of all, in Canada, there are two specific requirements needed to constitute a legal agreement; the first is a buyer and seller agreeing to the terms of a contract in writing. Those terms generally set out who is party to the transaction, the asset to be traded, a price, and a date that the transaction is going to happen. There may be some other conditions included for the benefit of either or both parties. The second requirement is a deposit. The deposit or “earnest money” is paid by the buyer to the seller or the seller’s representative to show “good Faith” and that the buyer is sincere in his intention to close the transaction.
In the standard OREA Agreement of Purchase and Sale, the buyer can submit a deposit either upon acceptance of an offer or at the same time as the offer (herewith). From time to time an offer may provide for a small deposit with an offer and a further deposit upon removal of conditions. Further, the APS stipulates that the buyer is required to deliver the deposit within 24-hours after acceptance. So what happens if the buyer’s agent shows up with the cheque 30 hours after acceptance?
Here is an interesting example; Seller Jones, represented by Agent Mike, recently accepted an offer on his house from Agent David’s client Buyer Smith. In this situation, there were multiple offers on the property. Agent David’s offer was the highest by several thousand dollars but stipulated that the deposit would be “Upon Acceptance”. The next afternoon, Agent Terry called Agent Mike’s office to find out what the property sold for. The office simply said that they were waiting for the cheque so they were unable to disclose the selling price at the time. Agent Terry, who is a real stickler for details, realizes that the 24 hour period is up and he believes that the accepted agreement is now null and void. He calls his client, Buyer McLoud (who was really upset about losing out on his dream home) and tells him to make a better offer on the property. Later that day Agent Terry presents an excellent, condition free offer to Agent Mike and Seller Jones. The offer is significantly higher than the offer that was previously accepted. Seller Jones tells his agent to inform Agent David that his deal is dead because the deposit was not delivered in time and that they are accepting Buyer McLoud’s offer.
The outcome; It is obvious that Seller Jones would rather take the higher offer from Buyer McLoud but technically, he still has a binding agreement with Buyer Smith who is now, legally speaking, in breach of his contract. In order for Seller Jones to make a deal with Buyer McLoud, he must first have a mutual release between himself and Buyer Smith. That may be hard to do if Buyer Smith wants the property. If however Buyer Smith woke up the next day with a case of buyer’s remorse, he may be happy to sign that mutual release and be grateful that he got out of the deal without any legal action.
As usual, I would love to hear your comments…