Toronto’s extreme housing market has always been the talk of the town, but recently it has slowed down significantly. This slowdown has left many sellers with reduced bargaining power due to the increased number of properties available on the market. At the same time, it has also led to a higher number of real-estate transactions falling through, as buyers now have more options to choose from.
When a buyer fails to close, many buyers believe they only need to forfeit their deposit. However, it is not always that simple. It’s crucial for buyers to understand the dynamics of the housing market, especially if there’s a risk they might not be able to finalize the purchase. During a falling housing market, if the seller is forced to find another buyer but the price is significantly lower, there is a chance that the buyer will be liable for the price discrepancy. This underscores the importance of carefully considering one’s ability to complete the purchase and understanding the potential risks involved in backing out of the real-estate transaction.
When individuals purchase property, they sign an agreement of purchase and sale (“Agreement”), agreeing to complete the sale of the property at a specified price and date, known as the closing date. If either the seller or buyer fails to close, the innocent party may choose to seek damages for the costs that they have incurred. Generally, damages awarded in real-estate litigation scenarios are intended to restore the innocent party to the position they would have been if the original agreement had been fulfilled.
Damages if Buyer Fails to Close
As a seller, if you incur any out-of-pocket expenses due the buyer’s failure to close, you may be able recoup your expenses. To do so, you must be able to prove your out-of-pocket expenses and demonstrate that you have taken steps to minimize your losses. For instance, this may involve, relisting your property and selling it at the best available price within a reasonable time.
In Country Wide Homes v. Cui, the buyer went back on the Agreement to buy a newly constructed home. To mitigate his losses, the seller sold newly constructed home to another buyer for $850,000 less than the original deal. He sued the original buyer for damages. Ultimately, the seller was awarded $906,474 as he was compensated for broker commission, a humidifier, cleaning and maintenance fees, new paint, etc. Similar cases have also seen compensation for post-closing natural gas, electricity, and insurance premiums.
Damages if Seller Fails to Close
On the contrary, if the seller fails to close and the buyer incurs additional costs when purchasing a replacement property, the buyer can pursue the seller for such additional damages. If the replacement property has a higher purchase price than the original property, the buyer may recover the difference in cost between the replacement property and original property.
Similar to sellers, buyers are also obligated to mitigate their losses caused by the seller’s failure to close. Buyers may also be able to seek reimbursement for out-of-pocket expenses incurred or a obtain an order for specific performance to enforce the sale. For more details on specific performance or recovering out-of-pocket expenses, please refer to our previous blog post.
Takeaways
In most cases, both parties should follow through with their purchase to avoid facing damages. In reality, this is not always feasible.
As experts in real-estate litigation, we often assist sellers that anticipate that the buyer will be unable to close. One option is to consider extending your closing date at the cost of an additional deposit. If the buyer ultimately fails to close, make sure you keep a record of your out-of-pocket expenses incurred. Similarly, we also assist buyers who anticipate challenges in closing the deal by considering alternative financing routes.
Navigating real-estate litigation can be complex as it aims to balance the interests of both parties. Our team is dedicated to providing expert advice on your real-estate litigation complexities. Sellers and buyers may contact us at any time regarding their questions on their rights.
