There is an alarming trend that is quite rampant in the Toronto area, and it’s causing havoc on real estate transactions. Perhaps other cities in Canada are experiencing the same issue in this red hot real estate market.
Buyers are submitting offers, often in multiple offer situations, and then not showing up with the deposit cheque.
It is speculated that this is being done while buyers are submitting offers on numerous properties simultaneously, with the intent to later sit back and decide which property they like best, or the one where they got the best deal. Then they do not show up with the deposit cheque, as called for in the offer for all other properties that they are no longer interested in pursuing.
Many times these are “firm” unconditional offers that are being submitted.
Due to COVID-19, more and more offers are being submitted via email, with the deposit cheque due “upon acceptance”. What we are experiencing is that often, the Realtor drags out the process of delivering the deposit cheque, or their buyer does, although the offer calls for delivery of the deposit upon acceptance.
Unfortunately what happens in this hot sellers’ market is that other offers that were submitted, and that would also have been acceptable to the sellers in multiple offer situations, move on to purchase elsewhere. Or they choose not to pursue the property once it becomes apparent that the deposit cheque from what was the “winning” offer was not delivered, as the process has left a “bad taste in their mouth”.
In my brokerage, our locations just north of Toronto have had nearly 30 of these instances in the month of September alone…a startling trend that started becoming apparent about three months ago but has since ramped up to the numbers we are experiencing now.
We are hearing that many other Realtors and brokerages in the GTA are experiencing the same thing.
The additional issue is that the sellers are left in a very bad situation, with limited options. Sure, they may have a firm offer and a breach by the buyer for not submitting the deposit cheque, but in order to pursue action against the so-called buyer, the seller would be forced to wait until the closing date of the accepted offer has come and gone (which could be 60-90 days from acceptance or more), and then pursue legal action (which could take several months or even longer after the proposed closing date just to get to court).
It leaves sellers in a position where they can’t even look to buy a property and move on with their lives. They are effectively left in limbo, with only one viable option…execute a Mutual Release with the buyer that did not submit the deposit cheque and start the process of trying to sell their home all over again.
When this happens, the sellers become disillusioned, their listing loses momentum and appeal as being a fresh, new listing, and people question why the property did not sell (especially if this happens in a situation where the seller had instructed to hold offers until a presentation date, now resulting in several days, a week or even more time lapsing without a legitimate sale).
In order to deter this behaviour, and shield our seller clients from this hardship as best as possible, I have devised a Realtor Offer Covenant Agreement that our brokerage is having executed by the co-operating brokerage when submitting an offer on any property, whether in multiple offers or not, confirming that:
- The buyers have not submitted any other offers through the Realtor or co-operating brokerage that are either currently accepted or irrevocable for acceptance, with a further covenant not to do so during the currency of the offer being submitted; and
- That the deposit cheque is to be promptly delivered as per the terms of the Agreement of Purchase and Sale, and in the event of a wire transfer, the Realtor covenants that they have confirmed that the funds are readily available for transfer upon acceptance of the offer; and
- An acknowledgement that submitting offers on multiple properties at the same time, without the buyer’s intent or ability to fulfill their obligations on all submitted offers, constitutes a breach of at least five sections of REBBA 2002; Fairness and Honesty. O. Reg. 580/05, s. 3., Conscientious and Competent Service O. Reg. 580/05, s. 5., Dealings with Other Registrants O. Reg. 580/05, s. 7 (2)., Delivery of Deposits and Documents O. Reg. 580/05, s. 29, and Error, Misrepresentation, Fraud, etc. O. Reg. 580/05, s. 38.
Ideally, in my opinion, this sort of language from the Realtor Offer Covenant Agreement should eventually be incorporated into the Confirmation of Co-operation document that accompanies all offers. However, we think the Realtor Offer Covenant Agreement is a great solution that may be of interest to our colleagues at other brokerages who are experiencing these issues.