For most of my career in real estate, I have very seldom encountered a firm and binding agreement that didn’t close. However, in recent weeks I have heard or witnessing this happening on a more frequent basis. With this in mind, I wanted to shed some light on why a deal may not close, on how to safeguard your position and what recourses exist if your real estate deal doesn’t close.

Typically, a buyer who submits an offer on a property will make it contingent on two conditions: financing and a home inspection. Of course, some properties necessitate additional protective clauses for either the buyer or seller.

Upon removal of these conditions, the offer then becomes a firm and binding agreement upon both parties. In most cases both sides then wait patiently until the closing date at which time monies and keys are exchanged and the title is transferred to the new homeowners.

But what if the unimaginable occurs and you receive a call from your realtor or solicitor indicating that the buyer(s) of your home is requesting an extension on the closing date, or, worse yet, the deal is dead and there is no chance of it closing. Naturally, as a seller, panic sets in. Why is this happening? What can I do? Does the buyer forfeit his/her deposit?

Unfortunately, what is happening today is that many buyer agents are removing the financing conditions without actually having a bonafide commitment from a reputable financing institution. Some of these agents believe that there is ample time to secure a mortgage. However, this can have very serious repercussions on all parties. In most of these instances, the buyer should never have removed the pending condition(s).

Then there are other occurrences when a buyer will ask for an extension of the closing date and scramble to see if there are alternative financing options. As a seller, you may have already bought another home and this extension may mean trying to obtain a bridge loan in quick order. The rippling effect can have catastrophic implications.

In some instances, the buyer has no possibility of securing a mortgage and the deal is aborted. Some sellers mistakenly believe that he or she is automatically entitled to the deposit. Unfortunately, unless the buyer agrees to execute a mutual release, the monies will remain in a trust account indefinitely. This may require the courts involvement, which could take months/years.

In the interim, most sellers’ lawyers will advise their clients to put the home back on the market to try to mitigate losses. If the property subsequently sells for substantially less than the initial offer, then the seller can sue the buyer for the quantifiable loss. Remember, however, that the legal process is very time consuming. In fact, even a judgment in favour of the seller doesn’t ensure the recovery of any funds. (This is because in some instances, the buyer may opt for such remedies as bankruptcy.)

When it comes to initially deciding on a deposit amount, a large deposit is preferred to a small deposit because it is easier to “walk away” from smaller capital. Even though (as illustrated above) the money doesn’t automatically go to the seller, the very fact that the deposit money is sitting in “trust,” will ensure, at some point in time, a much greater likelihood of an equitable distribution of those funds.

As a rule of thumb, if the closing date is long (90-120 days plus) it is advisable to ask for a larger deposit (even if it is staggered), because there is a greater likelihood of something going wrong with a longer closing date.

In my experience, financing matters are the principal reason buyers can’t complete a transaction. Other reasons include: a change of mind, perceived weakened housing market and marital status change.

If there are any doubts about the financial capacity of the buyers, my recommendation would be to insert this text in the body of the offer: “This offer is conditional upon the buyer providing written verification of the mortgage approval upon removal of all conditions to the satisfaction of the seller or his agent, failing which this offer shall become null and void.”

An experienced listing broker will be able to quickly assess the viability of the approval. If it the lender condition remains unsatisfied, then this is cause for concern.

On the flip side, I have seen, on a few occasions, a seller who is unable/unwilling to complete the transaction. The primary reason for this is that the dollar value of the registered mortgages, liens, etc. exceeded the net sale price of the property. It is essential for the listing agent to calculate, in advance, the net proceeds from the sale of the property. If there are any question marks, a further analysis should be conducted by the listing agent.

Sometimes, if the loan, judgment and/or lien values are greater than the net sale price, a lender will agree to allow the sale to proceed provided a seller signs a consent judgment which in essence is an acknowledgement of monies still owing to the lender. Proper early planning is essential in these instances.

On vary rare occasions I have seen a seller change their mind about selling their home. Although not frequent, the enforcing of the contract can be time consuming and a buyer in this unique circumstance may be better to find a replacement home. Of course, if it is the buyer’s dream home, they may be left with no other option but to seek legal assistance in completing the transaction.

I trust this article has helped you gain a better understanding on this delicate subject to help ensure you aren’t left with a deal that doesn’t close.