As the GTA housing market remains strong, some buyers are losing their deposits when they have a change of heart about the purchase after seeing the home inspection.
Here’s what is happening:
As the average price of a house climbs, many offers are accompanied by substantial deposits, in some cases $25,000 or more. The offer is conditional on the buyer being satisfied with the inspection and in some cases, the buyer is unhappy enough to walk away and ask for their money back. The sellers are upset, because if other buyers hear about what happened, they will wonder what is wrong with the house. The seller can’t answer because they didn’t see the inspection report.
In general, the courts have indicated that buyers must act honestly, reasonably and in good faith. Unfortunately this will have to be proven in court, which means lawyers, legal fees and the potential for the deposit to be withheld for up to two years.
Sellers are not entitled to a copy of the inspection report unless the parties agreed to it. In my opinion, sellers should always include a contract clause that says if the buyer wants to negotiate a reduction, or cancel the deal because of problems in the inspection report, then the buyer must give the seller a copy of the report. This will give the seller the opportunity to check the problems for themselves and be able to explain it to any future buyer.
If the buyer does not conduct the home inspection at all, or perhaps brings in an unqualified person to conduct the inspection, then I believe that these might be examples of not acting reasonably and in good faith. It would then be difficult for a buyer to try and cancel the agreement and argue that they acted in good faith. That’s why it is so important that buyers always use qualified home inspectors.
In a seller’s market, many buyers decide not to include a home inspection condition so they can provide a “clean offer” to the seller. This usually happens when there is a bidding war.
But there are other ways to protect buyers in these circumstances. For example, you can arrange for a home inspection before you bring your offer. Most sellers will be agreeable to this. You are only asking for trouble if you don’t conduct a home inspection before you decide to buy.
In addition, if a buyer is not in a bidding war, consider two deposits, a small one when the deal is accepted, and a larger once you are satisfied with all of your conditions. That way, if you are not satisfied, there is not much of a deposit that will be worth fighting over.
It is very important for buyers to understand all your legal rights and obligations relating to conditions before you bring any offer to buy a home.
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