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Let’s look at what can happen if the buyer does not close. You have sold your home for $400,000, with a $5,000 deposit. The buyer can’t close. You subsequently re-sell the home for $370,000, suffering a $30,000 loss. You can now sue the buyer for the $5,000 deposit and the balance of your loss of $25,000. However, let’s say the buyer is bankrupt. You will collect nothing except the $5,000 deposit.
Some buyers try other tricks to reduce their liability, such as putting the offer in the name of a corporation that has no assets. That way, even if they cancel the deal, there is no one to sue successfully. Another trick is to include an assignment clause so that the buyer can transfer the deal to another buyer, without any liability. You can also have a situation where a married couple puts an offer in the name of only one of the spouses; the spouse that has no money or no assets in their name. You get the picture.
Here are six tips to make sure that you choose the right buyers every time, and that your deals close on time:
1. Insist on a high deposit, usually 5% of the purchase price. In my experience, with over 30 years of closing real estate deals, when a buyer comes up with at least 5% as a deposit, they find a way to come up with the money to close the deal.
2. Ask the buyer’s agent to verify that any interested buyer has been pre-qualified for financing, meaning that they have already been approved to carry any mortgage required to close the purchase. For extra proof, ask to see a copy of the buyer’s mortgage commitment, or consider making the deal conditional on your being satisfied with the buyer’s credit report.
3. Ask the buyer if they need to sell their existing home to be able to buy your home. You may want your own agent to do some due diligence to make sure that this buyer will be able to sell their home in time to get the money to close your deal.
4. Always insist that any offer from a married couple be in both names, written on the offer itself.
5. Do not accept any kind of assignment clause that limits the liability of the original buyer. If the buyer wants to transfer the agreement, that is fine, but they must remain responsible if any subsequent buyer does not close the deal with you. This will insure that they only transfer the deal to a qualified buyer.
6. If an offer is submitted by a corporation, make sure that the president of the corporation also signs the offer personally, so that they are also liable if there is any default.
By doing the right homework in advance on your buyers, sellers can rest assured that their deals will close on time, without any unnecessary aggravation.
Mark Weisleder is a Toronto real estate lawyer, speaker and author. He may be reached at firstname.lastname@example.org