Now that we have new mortgage rules, it is more important than ever before to include the financing condition in any offer or be otherwise prepared for the consequences.

Pre-approvals are no guarantee your buyer will obtain financing.

Too many buyers are cavalier about submitting offers without a financing condition, especially during the pressure of a bidding war. They must understand that even with a pre-approval, the lender must be satisfied with its own appraisal. The foundation for most appraisals is, what would a willing buyer pay a willing seller, WITHOUT pressure?

In a bidding war, there is almost always pressure on the buyer.

This is why the appraisal will likely be lower than what the buyer offered and the lender will offer your buyer less money than they hoped for. The answer is always to have an extra five to 10 per cent of the down payment in reserve to protect themselves. In a condominium purchase, if it is conditional upon review of a status certificate, use that time to also make sure their financing is in order.

Story continues below
Lenders can change their mind right up until the day of closing.

Even if your buyer is approved after they sign the agreement, the lender can still change its mind based on anything that they may learn before they advance the funds. There are usually many conditions attached to any loan approval, such as verification of income, down payment and employment. Make sure your buyer works with their mortgage broker to satisfy all of these conditions and requirements as soon as possible in the process.

The worst words a lawyer can hear from a lender on the day of closing is “The file is in underwriting”. This typically means that someone else is reviewing the entire file because issues have arisen. In some cases this can result in the entire loan being cancelled, right on the day of closing. In our firm, since we receive and send funds via wire transfer, we are fortunately able to complete deals even when lenders are late transferring funds to our trust account.

Always know the net amount your buyer will receive from their lender.

Every mortgage commitment is different. Some may contain up-front fees for arranging the loan, appraisals, CMHC fees and PST, and interest to the interest adjustment date. All of these fees are deducted right off the top, before the balance is sent to their lawyer on the day of closing. The bottom line is that your buyer must know the exact amount that will be sent to their lawyer on closing, to make sure they have enough to make up the rest of the down payment, land transfer tax and legal fees. At our firm we remind clients to send us their mortgage instructions early in the process so that we can get them the net amount they will need to complete the transaction in a timely manner.

Get it in writing if your buyer wants no finance condition in the agreement.

If the buyer does go ahead and tell you to put the offer in without a finance condition, get these instructions in writing. It is not enough to write the finance condition in the offer and then have the buyer strike it out and initial it. It is better to use a separate form.

In Ontario, OREA has form 127, which makes it clear that the buyer is confirming to the buyer brokerage that they understand the risks in making an offer without conditions.


  1. Very pleased in a recent [multi] offer situation the Listing Agent asked for A Letter of commitment from the lender indicating a lending limit.

    Our particular situation show an approval for approximately 50% of the purchase price.
    In writing
    With the offer.

    Thats how you win.

    Display the Buyer’s ability and Capacity to compete the transaction.

    David Pylyp
    Toronto Luxury Homes

    • David,

      A REALTOR has a professional obligation to ensure that their buyer clients are prequalified, and should face consequences if they represent a buyer in a transaction who personally doesn’t qualify for the mortgage that would be required.

      Precisely how much, in terms of the maximum amount a buyer could pay, at the time of offering, is a matter that would fall under Agency and the confidentiality aspect of Agency. Should a buyer find themselves forfeiting this confidential information they might as well be buying privately!

      I suppose we can safely assume that a letter reinforcing a 50% ability towards the full price, meant that your buyer had cash in hand for the other half. The likelihood that you would be carrying around a financing letter for what your buyer intended to finance, that represented exactly 50% of a successful offer price, seems unlikely. Even if you knew of this requirement ahead of time you wouldn’t be able to deal with a counter offer in a timely manner.

      As Mark has indicated in his subject article, the fact that a buyer may be properly prequalified doesn’t mean that a home will necessarily appraise out — consequently “Financing clauses” have a broader purpose. Part of the purpose of a “financing” clause can be to show how much equity verses debt a buyer is bringing to the transaction.

      The protection that a buyer should get within an Agency relationship is severely compromised if a seller is given private information, in terms of the maximum or a range maximum as it would relate to a mortgage or their over all buying power. A seller could use the aforesaid information to counter back at a higher price than they otherwise would have, causing a buyer to pay more than they otherwise would have!

      Big deposits and perhaps bigger down-payments are how buyer’s can win, and if they lose that deposit because they couldn’t precisely honor a “financing clause” then they haven’t lost anything, because that falls where it should on the shoulders of their REALTOR! However, while a seller having some limited knowledge of the depth of a buyer’s pockets may help a buyer solidify a deal, the strength of a buyer’s equity position might also be used against them.

      Even if the listing agent had stipulated in the listing contract that all offers must be accompanied with proof of the buyer’s financial ability to complete the transaction, it would still create the potential for delay in the presentation of offers. This situation could be prejudicial to the seller and the impetus for it should be a redundancy, not to mention that it’s unlikely that it could be facilitated without bastardizing Agency.

      “That’s how you win” If your buyer paid more than they had to, then you won, but they won, at a price.


Please enter your comment!
Please enter your name here