Making an offer on a house is always exciting. There’s a particular adrenaline rush that goes along with making what might be the biggest purchase of your life. Unfortunately, after that rosey glow wears off, things can go wrong. What if you get an inspection that shows defects in the house, or you can’t get mortgage approval? What if you change your mind, or the seller changes their mind?
As I mentioned in an earlier column, a contract for a house purchase is binding when both parties have signed a document that describes the parties, the property, and the price. Most of the time, the contract will contain conditions that need to be fulfilled prior to the contract becoming unconditional. If you are a purchaser and your inspection doesn’t work out or you can’t get a mortgage that makes sense for you, you can back out of the deal with minimal consequences provided you have the appropriate conditions in your contract. If you’re the seller, you generally don’t have a clear way to get out of the contract once it has been signed. The conditions are for the buyer’s benefit, not the seller’s, so it’s not in your power to back out of the deal. It’s up to the buyer to make reasonable efforts to satisfy the conditions of the contract prior to subject removal. If they fail to do so, the seller may be able to keep the initial deposit.
Once the subjects are removed, both parties are obligated to complete the deal. If the buyer refuses to go through with it, they risk losing their deposit. If the seller refused to complete, they could be sued for damages. Damages could include the costs incurred by the buyer to that stage (likely the home inspection and legal costs), the price difference between the house they had intended to purchase and a comparable house, and other costs flowing from the failure to complete the purchase.
There are also times when a deal closes, everything seems okay, and then things come to light about the property that might not have been obvious. In that instance, the buyer is going to have to recoup what they can from the seller, either through agreement or through court proceedings. It is common for home inspectors to limit their liability to the cost of the inspection, so usually there isn’t much recourse against a home inspector, unless the home inspector did a patently terrible job and was grossly negligent. The buyer will have to show that the seller (or possibly the realtor) concealed defects from them.
Most real estate deals are fairly painless, but with the financial and emotional investment, things can go wrong and cause stress. There’s really no way to ensure your deal is painless, but a few things will help:
1. Speak to a mortgage provider before you start looking at houses – that way you’ll know what price range will make sense for you.
2. Give yourself sufficient time for subject removal (the time between signing the contract and when you need to have your financing approved and inspection completed) – sometimes financing approval can take a while and inspectors can be busy.
3. Hire an inspector with a good reputation. Ask your friends or your realtor who they recommend. Consider asking to see a sample inspection report – it may give you an idea of how thorough they are likely to be.
4. Review the Property Disclosure Statement filled out by the sellers.
5. Ensure that you are clear on what items will be included with the purchase. If there is something you particularly want included, sort that out in the initial agreement.
Happy house hunting, Revelstoke!