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The Danger of Firm Offers

Posted June 21st, 2021 under pitfalls, smart buying.

In today’s market, where most listings end up attracting multiple offers, buyers have very little chance of having a conditional offer accepted. However, the risks involved with an unconditional offer are significant: what if the buyer cannot obtain a mortgage, or fails to sell their own home in time?

Take this real case as an example:

A buyer bought a home without any conditions and submitted a deposit of $100,000 with the offer.

A few days before the closing date, the buyer had not sold their home, and as a result did not have enough funds to complete the deal. They notified the seller and released them, so the seller could put their home back on the market.

However, the seller kept the deposit of $100,000 rather than returning it. The seller went on to sell the home after a short time for $115,000 higher than the original sales price.

The buyer went to court to have their deposit returned, claiming that the seller had not suffered any losses, since they had sold for more than the original sale price.

The Judge, however, stated that the purpose of the deposit was to bind the buyer to complete the purchase. Since the buyer was in breach of contract the deposit was forfeited to the seller, regardless of the higher selling price.

These kinds of judgements are now the norm, and it is extremely unlikely that a buyer will get their deposit back if they don’t close the deal.

Being unable to get a mortgage or failing to sell your home within a certain time period are not rare events or hypothetical risks. They are very real possibilities, so think twice before you sign an unconditional offer.

Want to know more about offers and conditions? Just ask me, I'll be happy to help.

--Peter

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