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12 Jan

Beware of Unconditional Offers. It cost this GTA buyer $620,000


Posted by: Darick Battaglia

Picture this…Its a hot market with multiple offers on limited supply.  Your Real Estate Agent advises that without an unconditional offer you will have no chance of winning the bid on the new home.  You know that you cannot purchase the home unless your home is sold but you take a chance believing that your home will sell quickly and at the price your agent is advising.   The odds are in your favour but if the economic timing is off you could lose big.

Your unconditional offer is accepted and now you go about listing your home for sale.

Happy ending – Your home sells and you only require bridge financing to bridge the gap on the closing date.   Unhappy ending 2) . The bottom of the market falls out, or the government makes a mortgage rule change and you are unable to sell your home at the price you need to have enough equity to purchase the new home or the qualifying criteria for the new mortgage puts you in a situation where you no longer qualify.

An Ontario Court of Appeal delivered an expensive lesson to a GTA homebuyer who made an unconditional offer that was later retracted.

Back in 2017, Shahla Sheikhtavi had made an unconditional offer on an East Gwillimbury, Ontario, home for $1,871,000. Following the introduction of the province’s 15% Non-Resident Speculation Tax (NRST), Sheikhtavi found herself in the midst of a market downturn and unable to sell her current home to obtain mortgage financing for her new purchase.

After rescinding her offer, property owners Richard and Sylvia Perkins were forced to re-list their home for $1.251,888nearly $620,000 below the original offer.

A lower Ontario court ordered Sheikhtavi to pay damages of $619,112, despite pulling out of the purchase offer. She appealed the judgment and just last month an Ontario Court of Appeal sided with the lower court and ordered the original payment, plus $15,019 in legal costs.

“In this case, the appellant deliberately chose not to include a condition that she had to be able to sell her home and obtain mortgage financing before closing as a term of her offer to purchase,” the court wrote in its judgment.

“She would reasonably have known that there was a risk her home would not sell at the price she sought but made an unconditional offer to purchase the respondents’ home because she wanted her offer to be accepted (although she was not the highest bidder)…The appellant’s contract was not frustrated; it was breached by the appellant.”

Lesson Learned

It was an expensive lesson for this homebuyer, but one that other buyers should take into consideration when making unconditional offers.

Buyers can’t rely on “supervening events” like mortgage regulations or regional foreign homebuyer taxes to provide grounds for backing out of a mortgage contract,” noted Brendan Monahan of Babin Bessner Spry in a review of the case.

“However, because the appellant’s offer was not subject to any conditions, the announcement of the NRST (however unexpected it may have been) did not force the appellant to do something different than what she agreed to.”