: Real estate deal falling thru



colossk
2011-05-11, 05:38 PM
If I have an offer to purchase a property and my only condition is financing, and this condition has not been waived, if I decide to not buy the house do I get my security deposit back?

I can get the financing, but not at the rate I thought. The clause on financing reads "this offer is conditional upon the buyer arranging financing satisfactory to the buyer in the buyers sole and absolute discretion"

This is in Ontario if that matters.

LondonHomes
2011-05-11, 06:12 PM
That is why the condition is there.

If you want to get out of the deal based upon financing call up your real estate agent and tell them you cannot get the financing you wanted.

You will need to sign a mutual release form to effectively terminate the deal. Once that is processed it will take a few days but you should get a cheque in the amount of your deposit.

dogcom
2011-05-11, 06:17 PM
Once you have signed and the offer has been accepted then you have a binding contract. Check with an expert on the condition of the satisfactory financing if you can back out now. My concern would be if you bought another property and could easily finance that if they can sue you for that.

On the deposit if the seller wants it they will have to spend time to get it and would not be able to sell their house to anyone else until the issue was resolved I believe. So they may let you go if they have other interested parties.

I could be wrong on this stuff so again check with an expert.

On another note why did you sign a contract without knowing exactly what kind of financing and rate you would get. I find this to be very irresponsible in the context of such an important purchase and the signing of a legal contract.

colossk
2011-05-11, 06:42 PM
Once you have signed and the offer has been accepted then you have a binding contract. Check with an expert on the condition of the satisfactory financing if you can back out now. My concern would be if you bought another property and could easily finance that if they can sue you for that.

On the deposit if the seller wants it they will have to spend time to get it and would not be able to sell their house to anyone else until the issue was resolved I believe. So they may let you go if they have other interested parties.

I could be wrong on this stuff so again check with an expert.

On another note why did you sign a contract without knowing exactly what kind of financing and rate you would get. I find this to be very irresponsible in the context of such an important purchase and the signing of a legal contract.

I was getting a 0% financing loan from a family member up to a certain dollar amount for x years. This offer was withdrawn after the family member viewed the property with me today.

It was being bought as an investment property. The family member is an appraiser and said the house was not worth it and he would not finance it.

I can go to the bank and get a conventional morgatge but when you factor in the 3.69% interest rate the #'s for the inveestment property no longer make it nearly as attractive.

the-royal-mail
2011-05-11, 08:23 PM
I agree with dogcom's last paragraph. Never put in an offer on any house if you don't have your financing pre-approved. The clause being discussed here is not a buyer's remorse clause. It is there to protect people in case of unexpected financing problems.

sags
2011-05-11, 09:08 PM
The clause you quote is clearly an "opt out" clause, and you can decide the financing is not suitable to you. The real estate agent will have the deposit in trust and will have to return it.

Sellers are not obligated to accept conditional offers, and some wont.

Four Pillars
2011-05-11, 11:50 PM
I was getting a 0% financing loan from a family member up to a certain dollar amount for x years. This offer was withdrawn after the family member viewed the property with me today.

It was being bought as an investment property. The family member is an appraiser and said the house was not worth it and he would not finance it.

I can go to the bank and get a conventional morgatge but when you factor in the 3.69% interest rate the #'s for the inveestment property no longer make it nearly as attractive.

Sure sounds like your financing fell through. That's legit.

Can I suggest that next time your family member checks out the property before you bid?

Berubeland
2011-05-11, 11:59 PM
This is such a bad idea, I'm speechless or rather typeless.

marina628
2011-05-12, 12:04 AM
Bottom line is you can tell them you didn't get financing and they will never ask to see a decline letter from bank.If you feel paying 3.69% is too much then you may want to consider the entire set up.Is this your first home purchase?

sags
2011-05-12, 01:40 AM
I have bought and sold a few homes, and many had a financing condition on the contract, but I have never seen one with that particular wording.

Essentially, it makes the contract worthless, as it states the purchase is dependant on the buyers obtaining financing that is "satisfactory" to them, in their "sole and absolute discretion". Based on that legal wording, the buyers can withdraw their offer for any number of reasons, and actually don't even have to give a reason. It might as well say the buyers can withdraw their offer "if they feel like it".

The financing conditions I have seen usually state the purchase is conditional on financing.........and leave it at that.

Ultimately though, the sellers signed the agreement, so they are bound by it.

Perhaps they had good reasons for accepting the condition.

dogcom
2011-05-12, 01:51 PM
Your right about that sags in that it is very unusual to word it that way and the seller accepts it. I am also interested to have berubeland explain why it is all such a bad idea other then what the royal mail and I have stated, now that she has time to get over the shock of it.

Also hearing four pillars say, the financing fell through and that is legit as being true but a little cold. While you are correct four pillars in my opinion we are talking about a contract to buy a house and not some stock on the TMX. It seems to me most people here think it is no big deal to just back out and possibly do it again like buying and selling a stock on the internet.

marina628
2011-05-12, 01:57 PM
With Conditional offers usually the Agent will write in the conditions in their wording .I am a RE investor and my agent has her own forms that she uses as standard but it is her wording in regard to the financial and home inspection conditions.I suggest they go house shopping together if the relative has final say.

Four Pillars
2011-05-12, 02:11 PM
Also hearing four pillars say, the financing fell through and that is legit as being true but a little cold. While you are correct four pillars in my opinion we are talking about a contract to buy a house and not some stock on the TMX. It seems to me most people here think it is no big deal to just back out and possibly do it again like buying and selling a stock on the internet.

I think that is just the way it goes. If you have an offer conditional on financing, then that means you might not have the money to pay for it.

The seller doesn't have to accept this offer. If they do - they have to be aware that the deal might not complete.

Not sure what you expect the buyer to do...if he doesn't have the money, he can't buy the house.

colossk
2011-05-12, 02:32 PM
Bottom line is you can tell them you didn't get financing and they will never ask to see a decline letter from bank.If you feel paying 3.69% is too much then you may want to consider the entire set up.Is this your first home purchase?

No this is not my 1st house purchase. This is however my 1st investment property purchase.

This would have been my 4th house purchase in 15 or so years. Our family keeps growing (3 kids) and we keep moving. Our last house purchase (July 2010) was our final House. It has everything we ever wanted/needed and it has room to grow. We do not plan on moving until we downsize when our kids are out of school.

3.69% is not to much for us to afford, we can easily carry the mortgage/taxes even if the place stayed vacant permanently, The issue is the #'s didn't work nearly as well (not affordability, but profitability from an investment point of view) @ 3.69% compared to the 0% interest (gift) we were getting offered by my father.

The refusal from my father to purchase the property came out of left field and caught us completely by surprise. There was never any talk/discussion of him having to approve the property 1st. He wasn't down to approve the purchase, we asked him to come down and to do an inspection since he is an appraiser and has other certifications that allow him to properly inspect the property"

We figured it would save us $400 for a home inspection. He originally didn't even want to come down as he lives out of town several hours away. As it turned out he had some business in this are and figured why not look at it

The difference between the 3.69% financing that we have been approved for and the 0% financing (Gift) that my father was giving us brings the positive monthly cash flow of this investment property down to $200/month from about $625/month (3.69% is about $425/month in interest) This makes the investment property go from a really good investment to an ok or sub par investment.

colossk
2011-05-12, 02:34 PM
With Conditional offers usually the Agent will write in the conditions in their wording .I am a RE investor and my agent has her own forms that she uses as standard but it is her wording in regard to the financial and home inspection conditions.I suggest they go house shopping together if the relative has final say.

We've decide to leave the relative out of it completely and find a house based on a bank's interest rate. If my father wants to finance the property still we will consider it a bonus

colossk
2011-05-12, 02:36 PM
That is why the condition is there.

If you want to get out of the deal based upon financing call up your real estate agent and tell them you cannot get the financing you wanted.

You will need to sign a mutual release form to effectively terminate the deal. Once that is processed it will take a few days but you should get a cheque in the amount of your deposit.

This has been done and we are receiving the deposit back

colossk
2011-05-12, 02:38 PM
This is such a bad idea, I'm speechless or rather typeless.

I'm unsure what idea you are reffering to? The financing thru a family member?

marina628
2011-05-12, 02:40 PM
We have 5 investment properties and pay mortgages from 3.49% -5.1% ,if you need 0% financing I recommend you do walk away.Obviously it may be wrong house,wrong area or both.

colossk
2011-05-12, 02:41 PM
Your right about that sags in that it is very unusual to word it that way and the seller accepts it. I am also interested to have berubeland explain why it is all such a bad idea other then what the royal mail and I have stated, now that she has time to get over the shock of it.

Also hearing four pillars say, the financing fell through and that is legit as being true but a little cold. While you are correct four pillars in my opinion we are talking about a contract to buy a house and not some stock on the TMX. It seems to me most people here think it is no big deal to just back out and possibly do it again like buying and selling a stock on the internet.

I never said I didn't think it was a big deal, but to be completely fair/honest, it's only been a total of 2 days since the offer was accepted and withdrawn and the financing reason was compleetely legit.

It's not as if we held the house up for months

colossk
2011-05-12, 02:46 PM
We have 5 investment properties and pay mortgages from 3.49% -5.1% ,if you need 0% financing I recommend you do walk away.Obviously it may be wrong house,wrong area or both.

I don't need 0% financing to be able to afford it, but obviously an extra 5k year in interest savings certainly is nothing to sneeze at. Or are you refering to the fact I should be able to find a house that nets a positive cash flow of $600 or so a month based on 3.69-5% interest?

Out of curiosity and if its not to personal what kind of numbers do you have on your properties as far as positive cash flow?

As I said earlier this is our 1st investment property and I'm completely new at this "investment property thing"

jamesbe
2011-05-12, 02:51 PM
I've only ever seen the escape clause written as this was has. Which as some have pointed out means, the buyer can get out of it for any reason they feel like.

I've never put the clause in my offers because I already know ahead of time if I am getting the financing or not.

marina628
2011-05-12, 03:08 PM
All my properties are cash positive so yeah that is what I mean.I do not wish to go into particulars of my RE holdings but even with the one house with the 5.1% mortgage they are cash positive on what we HAVE to pay on the mortgage.We are earning about $500 -$600 over the expenses each month on 25 year mortgages but we take all this money and put down on the mortgages .As RE investors we are required to put 35% down on each house.We did the first 3 with 20% down but after that they need 35% down.

Homerhomer
2011-05-12, 04:01 PM
Perfect example why when I sell the property I would never accept the financing clause in the offer.

Four Pillars
2011-05-12, 04:15 PM
Perfect example why when I sell the property I would never accept the financing clause in the offer.

If you had only one reasonable offer with conditional financing - why wouldn't you accept it?

dogcom
2011-05-12, 04:24 PM
Sorry to be a little harsh colassk it is just that I want people to read into how serious it is to sign contracts. I just felt it seemed it was a little laid back and it is how it is.

Obviously I don't know your situation there and under the circumstances of the market you are in and this kind of thing can go on. It just bothered me to hear this kind of thing going on because of how personal real estate is to a buyer and a seller. Maybe this is the same problem Berubeland has or had with it.

Homerhomer
2011-05-12, 04:39 PM
If you had only one reasonable offer with conditional financing - why wouldn't you accept it?

So I wouldn't have to deal with a bs as stated in this thead (which basically means the buyer can walk away from the contract just because they have changed their mind since the seller has no way to verify it), and I would counter with an offer which have financing clause removed and give em reasonable time to get the approval (which these days you can literrally get it within minutes over the phone). That if it was only offer I had.:)

Four Pillars
2011-05-12, 04:51 PM
So I wouldn't have to deal with a bs as stated in this thead (which basically means the buyer can walk away from the contract just because they have changed their mind since the seller has no way to verify it), and I would counter with an offer which have financing clause removed and give em reasonable time to get the approval (which these days you can literrally get it within minutes over the phone). That if it was only offer I had.:)

The phone approval is not a real approval - it's a "pre-approval".

Good point though that you can put the ball back in their court and let them get their financing in order first (which they should have already done anyway).

marina628
2011-05-12, 05:34 PM
I would never put an offer on a house without finance condition and home inspection condition .Every offer is different to the bank and Even when I bought my third house with $192,000 down payment I would not be comfortable to let go of that little bit of protection.IMO the only way you will get a buyer who wont ask for the finance option is if they are downsizing and a cash buyer.

I'm Howard
2011-05-12, 06:07 PM
I always put in "subject to final approval of Lawyer".

colossk
2011-05-12, 09:20 PM
So I wouldn't have to deal with a bs as stated in this thead (which basically means the buyer can walk away from the contract just because they have changed their mind since the seller has no way to verify it), and I would counter with an offer which have financing clause removed and give em reasonable time to get the approval (which these days you can literrally get it within minutes over the phone). That if it was only offer I had.:)

Financing clauses are pretty standard these days, your out of touch if you think otherwise.

Banks won't give you the financing until they have a firm purchase agreement, you won't sell your property unless the financing condition is removed. How do I as a buyer protect myself? A pre-approval doesn't protect me at all nor does it mean I have financing

There is difference between a pre-approval and actual financing.
The bank can then decide to not give me the pre-aproval for many reasons. I have not bought a property yet where the bank has not requested an apprraisal to get a value on the property. If you list your house for 300k and the house is only worth 240k the bank can pull the plug even with a pre-approval which leaves me up sh**t creek without a paddle.

How do you expect to sell your house when you eliminate 99% of the market? Not many people pay cash for houses

Eliminating a financing cluase eliminates 99% of your buyers. Financing clauses are pretty standard these days. How many people can buy a house for cash? Not many, obviously if you want to eliminate 99% of your potential buyers than thats your choice.

sags
2011-05-12, 10:11 PM
It really depends on the market at the time.

If a person has multiple offers on their home, they aren't going to accept any
"conditional" offers.

If their property has been listed for some period of time, and they have a solitary offer, they might well accept conditions in the agreement.

A seller may also accept conditions, if they believe they are getting more for there home than it may otherwise sell for.

So, it all depends.

It should also be pointed out, that another offer to purchase can be accepted by the seller. The first buyer, with the "conditional offer", then has the option to waive the condition. Basically, it becomes a pecking order of buyers.

Most times, sellers and buyers come to an agreement, and if there are conditions placed on the offer, there are time limits to the conditions. In this way, the home is not held up for too long. Financing should be arranged within a few days to a week.

Investment properties are business deals. The buyer should put in whatever conditional clauses needed to protect themselves. The seller needs to consider the sale as a business deal as well, and protect themselves.

Friends of ours purchased a home, and they had the standard agreement. When they moved in, everything that wasn't solidly affixed to the walls was gone. Light fixtures, some cabinets and a kitchen island, even the toilet roll holders..........all gone.

The lawyer looked at their purchase agreement and told them, "well, you didn't put any of those things down in the agreement, so you are out of luck".

Stuff happens...........

sags
2011-05-12, 10:17 PM
I bought a home one time from a Canadian Army colonel.

Nice home in a nice area.

It looked great when we toured it a couple of times before purchasing.

When we took possession, we found they had put dressers in front of holes in the drywall, carpeted around the waterbed leaving a big empty, carpetless square in the middle of the bedroom, put up panelling sideways and hidden it behind open doors........and on and on.

All pretty minor stuff............but annoying just the same.

What are you going to do............sue them?

Homerhomer
2011-05-12, 10:28 PM
Financing clauses are pretty standard these days, your out of touch if you think otherwise.

Banks won't give you the financing until they have a firm purchase agreement, you won't sell your property unless the financing condition is removed. How do I as a buyer protect myself? A pre-approval doesn't protect me at all nor does it mean I have financing

There is difference between a pre-approval and actual financing.
The bank can then decide to not give me the pre-aproval for many reasons. I have not bought a property yet where the bank has not requested an apprraisal to get a value on the property. If you list your house for 300k and the house is only worth 240k the bank can pull the plug even with a pre-approval which leaves me up sh**t creek without a paddle.

How do you expect to sell your house when you eliminate 99% of the market? Not many people pay cash for houses

Eliminating a financing cluase eliminates 99% of your buyers. Financing clauses are pretty standard these days. How many people can buy a house for cash? Not many, obviously if you want to eliminate 99% of your potential buyers than thats your choice.

Nope, I am not out of touch, in most cases when buying property being pre approved is enough unless you buy a grow up house or there are special circumstances (most properties purchased as principal residence wouldn't be a special circumstance). I am not eliminating 99% of the buyers, I am only eliminating buyers who put an offer on impulse and didn't get pre-approved, who aren't serious enough about a purchase, or the once who think they can change their mind for no reason (or a reason not significant enough like not getting 0% mortgage from a family member like in your case ;-)

colossk
2011-05-13, 12:27 AM
Nope, I am not out of touch, in most cases when buying property being pre approved is enough unless you buy a grow up house or there are special circumstances (most properties purchased as principal residence wouldn't be a special circumstance). I am not eliminating 99% of the buyers, I am only eliminating buyers who put an offer on impulse and didn't get pre-approved, who aren't serious enough about a purchase, or the once who think they can change their mind for no reason (or a reason not significant enough like not getting 0% mortgage from a family member like in your case ;-)

Ok maybe I worded my post poorly. Are you going to eliminate the home inspection clause as well that is typical in almost all real estate transactions?

By being "out of touch", I meant to convey, is that by eliminating the 2 most common and widely used clauses in a contract (financing and home inspection) you eliminate the majority of buyers.

Very few people are going to buy a house without one of those clauses, and a buyer with the home inspection clause can decline the offer for any reason they want when they get the report, regardless of the financing situation. So you are really not eleminating the buyers you think you are

And your right, those situations where the bank does not approve financing after pre-aproval is very rare, but I'd rather not put in an offer and then discover I cant get financing because I bought a grow up as would (I assume) the vast majority of buyers.

I think your vastly underestimating the # of people who wont put in a financing clause, unless you are in a market where its common to have multiple bids.

And my reason is significant enough to decline the purchase, a difference of $400/month on an investment property is rather significant. I guess I'm not abundantly wealthy like you are.

Four Pillars
2011-05-13, 01:42 AM
Ok maybe I worded my post poorly. Are you going to eliminate the home inspection clause as well that is typical in almost all real estate transactions?

By being "out of touch", I meant to convey, is that by eliminating the 2 most common and widely used clauses in a contract (financing and home inspection) you eliminate the majority of buyers.

Very few people are going to buy a house without one of those clauses, and a buyer with the home inspection clause can decline the offer for any reason they want when they get the report, regardless of the financing situation. So you are really not eleminating the buyers you think you are

And your right, those situations where the bank does not approve financing after pre-aproval is very rare, but I'd rather not put in an offer and then discover I cant get financing because I bought a grow up as would (I assume) the vast majority of buyers.

I think your vastly underestimating the # of people who wont put in a financing clause, unless you are in a market where its common to have multiple bids.

And my reason is significant enough to decline the purchase, a difference of $400/month on an investment property is rather significant. I guess I'm not abundantly wealthy like you are.

colossk, I think you might be out of touch. In a hot market, you don't put conditions on the bid. You get the inspection done before the bid and have faith in your financing. That's the way it is sometimes.

Shayne
2011-05-13, 05:09 AM
I've only ever seen the escape clause written as this was has. Which as some have pointed out means, the buyer can get out of it for any reason they feel like.

I've never put the clause in my offers because I already know ahead of time if I am getting the financing or not.

This may have worked for you but it is dangerous for people seeking home buying information on this forum.

All preapprovals are conditional on the bank accepting the condition/price of the property. Not putting a financing condition in is like playing with fire.

Addy
2011-05-13, 09:24 AM
I agree with Shayne.

More and more the banks are appraising houses to see if they are "worthy" of the size of mortgage. If the house is not worth enough according to whatever standards they set, the buyer gets no mortgage. In such a case, without the subject to finance clause the buyer will lose their deposit.

Homerhomer
2011-05-13, 09:33 AM
. Are you going to eliminate the home inspection clause as well that is typical in almost all real estate transactions?

.

No, I also wouldn't buy a house without inspection.

It's not about being wealthy, it's about getting out of a contract in a situation where you could have been financed at the rates widely available to each and every one of us on the market, which I don't think it's fair to the seller.

All the clauses as mentioned before often depend on the market, in buyers market the seller will accept just about anything just to get the deal done, in sellers market it's a whole different story.

I have however learnt one thing from this thread though that the clauses in the contract better be very specific. Thank you.

I'm Howard
2011-05-13, 10:01 AM
Home Inspections don't always find problems.

Buyers bought our old home with an inspection, but failed to note the old wiring, failed to note that the basement frequently flooded, failed to note that two unused oil tanks were buried in the front garden, failed to note that there was a crack that allowed water in, plus a myriad of other problems.

I would always advise taking someone with you who has owned Houses, they may see things you don't.

A House we once sold to Asian mmigrants, they brought about twnety people, went through the house flushing toilets, running taps, turning on lights etc, My Wife was ready to scream, but they just wanted to make sure everything worked.

I will sell our current Custom Built Home, but it is difficult, Mike Holmes would love it, it is perfect, not sure about the next one, biggest problem is often the people next door.?

colossk
2011-05-13, 01:36 PM
colossk, I think you might be out of touch. In a hot market, you don't put conditions on the bid. You get the inspection done before the bid and have faith in your financing. That's the way it is sometimes.

So if I understand you correctly, you are willing to pay to have the home inspection done and in the meantime hope the seller doesn't sell it to someone else in the time it takes you to get a home inspector out to see the property or before the home inspection is finished and then be out the money?

Because theres nothing to stop the seller from selling it to someone else while or before your inspection is being done, as you have no contract.

Thats backwards no matter how you look at it.

In a hot market, with multiple bids, you eliminate the home inspection clause, if you are comfortable with doing that. Not use blind faith, cross your fingers and hope that when the bank wants an appraisal done on the property it is worth what it's being asked or that there isn't some other major issue that you wouldn't be able to forsee but an appraiser would that would stop the bank from financing the property at the price it's being sold for.

Four Pillars
2011-05-13, 02:09 PM
So if I understand you correctly, you are willing to pay to have the home inspection done and in the meantime hope the seller doesn't sell it to someone else in the time it takes you to get a home inspector out to see the property or before the home inspection is finished and then be out the money?



No, I wouldn't do that.

In Toronto (and elsewhere), it's common for sellers to create a bidding war by pricing the house a bit lower than market. However, they will always have a "bidding day" which is typically a week or after the house goes on the market.

So you have time to get the inspection done before the bidding day. Of course you might not get the house, but that's the way it goes.

It's also fairly common for the seller to get an inspection done in this situation and make it available for potential bidders. This is exactly what I did when I sold my first house.

My point is that your actions as buyer are dependent on what the market is like. If it is a strong seller's market, then buyers have to do crappy, risky things if they want a house. Wasted house inspections, stress over house appraisals, bidding wars etc.

I don't know what your market is like - perhaps the buyers are in control and call the shots.

mrbizi
2011-05-13, 09:13 PM
This is why most typical conditions (e.g. financing and home inspection) need to be addressed within five days (or the deal is null and void), so as not to expose the seller to taking their property off the market for too long.

Nothing wrong with what the OP did here in my opinion. The fact is that he/she really did need financing approval. It's not like the financing condition was included in the offer as a way out of the contract in case he changes his mind.

Addy
2011-05-13, 10:12 PM
Nothing wrong with what the OP did here in my opinion. The fact is that he/she really did need financing approval.

I agree, the seller had the option to insist this condition either be taken out, or decline the offer. Sellers have to be aware of offers they accept with conditions actually *are* conditions, not just meaningless words on a paper they are signing.