In a recent landmark case, a GTA couple was fined $470,000.00 in damages for backing out of a real estate deal to purchase a Stouffville house. This decision outlines the harshness of legal consequences when parties renege on a real estate deal. With houses in the GTA reaching record-breaking prices, the real estate market has come under further stress and scrutiny due to a combination of new federal stress tests, mortgage qualification criteria, foreign homebuyers’ tax and rising interest rates.
What happened in our case? David and Lea, the purchasers, made an offer of $2.25 million on a Stouffville property that was listed at $2 million. It represented the purchasers’ dream home, so they put a higher offer on it in order to quash the competition. Although it was not their intention to partake in a bidding war, they became entangled in one regardless.
At around this time, the real estate market was in fluctuation and prices of stand-alone homes were going down. Given the state of the market and based on second thoughts regarding their budget, David and Lea ultimately ended up withdrawing their $2.25 million offer just prior to making the second payment of $90,000.00, due by April 10, 2018.
The homeowners listed and resold the property for $1.77 million, which was substantially less than what the previous couple had offered and which led them to file a civil suit.
“When the residential real estate market is a rising market, most people — perhaps with the exception of first-time buyers, are happy homeowners and investors,” the Honourable Mark Edwards, of the Ontario Superior Court of Justice, stated in his decision.
“When the market turns and drops, it is not for the faint of heart. The facts of this case tragically demonstrate how one family, presumably desperate for their dream home, became embroiled in a bidding war and overextended their ability to finance the purchase price of that dream home.”
David and Lea are now looking at selling their current home, which is barely getting offers of $1 million due to the fluctuating and unstable real estate market. They are looking at rental options to accommodate their family of six in order to pay the damages.
Paying damages of $470,000.00 and not getting your dream house was a huge cost to this couple. Kevin MacDonald, the homeowner’s lawyer, said: “This is the takeaway from this case that what can happen when you withdraw in the circumstances they did.”
The majority of home buyers believe that if someone backs out of an agreed deal, the deposit amount only is forfeited. This case stresses that the legal implications of backing out on a real estate deal may vary depending upon the circumstances. Not only can they vary, but they can radically affect homebuyers’ ability to purchase another property thereafter. Stay cautious with bidding war, know your limit/market, Hire professionals and Stay Safe.
Curtsy: cbcnews, golbandmail, nationalpost, financial post, torontostar