Thinking of buying a house but not sure? Protect your offer to buy, otherwise it could cost you dearly if you change your mind and refuse without a good reason.
Several factors can stop your momentum: even the most reckless are wary of higher interest rates and the threat of a recession. “We don’t keep statistics on the cancellation of purchase offers, but through our Info-OACIQ line we feel there are more people who want to know if they can refuse a purchase promise,” says Sandra Barrett, director of the Organisme d’ Information Center. autoregulation du Courtage Immobilier du Québec.
The Quebec Chamber of Notaries also notes that there were slightly more reviews than usual. “Buyers may be afraid that they will end up buying property that could drop in value on resale,” says notary Lorena Lopez.
This is due to the fact that some real estate transactions are currently less attractive, and the cooling of the market significantly reduces the profit from quick resale. The number of home sales registered in Quebec in August 2022 fell by almost 23% compared to the same period of the previous year.
The situation has changed in a year, says Ms. Lopez. “We have sometimes seen sellers who, after formally accepting an offer to buy, turned it down because they received a more generous offer. It’s not like that anymore.”
Once accepted by the seller, “the promise to buy cannot be canceled unilaterally,” recalls Sandra Barrett. And it is irrevocable until the end of the period given to the seller to make a decision. The skeptical buyer has little leeway here, from a few minutes to a few hours, since the Civil Code provides that “a revocation that reaches the recipient before the offer invalidates it.”
Whether your trade is through a broker or not, a promise to make a purchase in good and proper form must include certain requirements designed to protect you from all foreseeable dangers.
Mortgage loan guarantee, inspection of the building according to your wishes, provision of a recent certificate of location are just some of the conditions that must be confirmed. “An informed buyer who has taken advantage of all the conditions can easily refuse if one of them is not met,” Ms. Lopez insists.
Otherwise, if the seller is satisfied with the offer and has fulfilled all the requirements of the buyer, and the latter can take a loan, the transaction must be concluded in a notarial order.
What happens if during this time the buyer finds out, for example, that the coveted residence is located in an area whose zoning will soon be changed?
“This is a new fact, this is not the same house! says Elena Maria Semenescu, DuProprio notary. According to the Civil Code, the seller must be liable to the buyer for any violation of public law restrictions.
It is clear that if this information did not appear in the aptly named “seller’s declaration”, the buyer has the right to refuse. “We cannot impose a new situation on the buyer, which, if he had been informed about it earlier, would have dissuaded him from buying a property,” adds Ms. Semenescu.
The price of broken promises
“Buyers don’t always appreciate the seriousness of signing a purchase offer,” Lorena Lopez laments. This is a breach of contract with consequences for sellers and, where applicable, brokers.
A seller who feels offended by a buyer’s refusal may sue for damages, arguing, for example, that the cancellation of the transaction resulted in a loss of money.
“But he has to prove that he is a victim of prejudice, that the other side was not in good faith,” emphasizes Elena Maria Semenescu, DuProprio’s legal adviser.
Example? In October 2020, a Quebec court awarded a Saint-Lazare resident nearly $73,800 in damages, doubling over a divorcing buyer who promised him $825,000 in 2016 in exchange for his property.
On the eve of going to the notary, the buyer stated, with the smugness of his broker and his banker, that he had not received financing to buy the property. The real reason? Rather, he wanted to get back together with his wife…
It is obvious that the buyer, who was abandoned by the seller in bad faith, can also bring such a claim. The broker may also argue that he could not have received the commission that the seller would have paid him in exchange for his services after signing the deed of sale.
Another solution sometimes used in practice is “transfer of title”. It consists of asking the court to force the recalcitrant party into the broken deal. “In this case, the applicant must submit to the judge a deed of sale, which the other party refused to sign,” emphasizes Elena Maria Semenescu.
“A claim to transfer ownership is often made against a seller who didn’t show up to the notary because he discovered he could sell his house for more,” adds Ms. Lopez.
There are less brutal ways to avoid going to court, says Sandra Barrett. “It is always possible, in the event of a withdrawal that was not included in the sale offer, for both parties to reach an amicable agreement or resort to the services of an intermediary.”
Plan for the worst
You need to consider all scenarios, make sure all angles are considered before sending out a purchase promise, Ms. Lopez suggests.
• Set limits on your ability to pay. “If you’re worried about raising interest rates in the near future, enter the maximum you’re willing to pay,” Ms. Lopez suggests.
• No exclusion of any legal warranty protecting you from hidden defects. “In recent years, we have seen a lot of promises to buy without a legal guarantee. The broker does not have the experience to advise you on this matter. It is better to contact a notary or a lawyer.
• Ask for a reasonable delay to inspect the property and secure funding. “Recently, the deadlines have been quite short,” Ms. Lopez laments.
• Communicate your intentions quickly. “It is important that the hesitant buyer does not keep the seller idle in order to minimize the impact or even allow the seller to put their house up for sale more quickly.”
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