Real estate: is it possible to cancel a purchase contract?

Real estate: is it possible to cancel a purchase contract?

Brigitte Cedilot, a real estate agent in Toronto, says rising mortgage rates have dampened buyers’ appetites. Interest rates affect people’s purchasing powershe explains.

The sales strategy, which consists of setting a specific date for receiving purchase offers (the famous offer datein English) generates much less than usual, he says.

Brigitte Cedilot, real estate agent for Royal LePage Signature in Toronto.

Photo: Radio Canada / Philippe de Montigny

With prices falling, some buyers are beginning to regret their purchase, especially those who closed a deal a few months ago and are soon due to take possession of a property that has already fallen in value.

There are many buyers who bought not too long ago who feel they paid too much and are even trying to get out of their contract. »

a quote from Brigitte Cedilot, real estate agent in Toronto

Nationwide, the number of properties sold fell 25.7% last month compared to April 2021, according to the Canadian Real Estate Association. The average sale price fell 3.8% from March to April, to $771,125.

The drop in average price is even more pronounced in certain Ontario cities, including the Toronto (-6.4%), London (-5.5%) and Hamilton (-4.2%) areas.

anguish and despair

Mark Morris, a real estate attorney, says that in recent weeks more and more of his clients want to cancel their real estate transaction. Between 5% and 7% of the agreements managed by his signature are now in this situation, compared to 1% in general.

I don’t think most of them want to quit because they think they can get a better deal. I prefer to think of it as a sign of desperation.launches the lawyer.

I’ve never really seen what we’ve been seeing for the last two or three weeks. »

a quote from Mark Morris, Real Estate Attorney

We see hesitant buyers and nervous sellersadds the lawyer.

Along with higher rates that reduce borrowers’ purchasing power, he notes that banks and other lenders have tightened the funds they make available to buyers in the form of mortgages.

Lawyer Mark Morris.

Mark Morris, attorney specializing in real estate law.

Photo: Radio Canada / Philippe de Montigny

The situation is particularly distressing for those who have committed to buying a property before selling theirs, emphasizes lawyer Laurence Dutil-Ricard. When you make a purchase-sale, you need the funds from the sale to be able to make the purchaseshe says.

The problem is that activity has slowed down a lot in recent weeks and some sellers are struggling to attract buyers. The offers are less and less attractive than before.

A month ago, we did not think so. Everything sold out in about six or seven days, especially if you’re well located in Toronto. »

a quote from Laurence Dutil-Ricard, lawyer specializing in real estate law

000$ or 100000$ more than it’s worth now, it’ll come back. That’s not stress. The stress is that nobody makes offers”,”text”:”Even if they bought $50,000 or $100,000 more than it’s worth now, it’ll come back. That’s not stress. The stress is that there is no one making offers”}}”>Even if they bought $50,000 or $100,000 more than it is worth now, it will come back. That’s not stress. The stress is that there is no one making offers.she says.

Lawyer Laurence Dutil-Ricard, sitting at her desk.

Laurence Dutil-Ricard, a lawyer specializing in real estate law in Toronto.

Photo: Radio Canada / Philippe de Montigny

How to get out of a purchase contract

Canceling a purchase contract is a long shot because the deposit required in some provinces, such as Ontario, would go to the seller.

000$ for the purchase of a house and you withdraw from the purchase agreement without a good legal reason, you risk losing your deposit and perhaps more”,”text”:”If, for example, you deposit $100,000 for the purchase of a home and back out of the purchase agreement without a good legal reason, you risk losing your deposit and maybe more”}}”>If, for example, you put down a $100,000 deposit on a home and back out of the purchase agreement without a good legal reason, you risk losing your deposit and maybe more.says Toronto attorney Laurence Dutil-Ricard.

Sellers can also claim damages. Properties are on the market for more days. Every day is a lost opportunity cost, so they can claim more because of the market downturn.which is formally recognized by the courts, emphasizes the lawyer.

An extract from a purchase contract showing a deposit of $100,000.

In Ontario, buyers who want to cancel a real estate transaction will likely lose their deposit, which can be around $100,000.

Photo: Radio Canada / Philippe de Montigny

It is always possible to negotiate an agreement that provides for the return of the deposit, either in part or in full. The alternative is to go to court, which can take years and be very costly for both parties.emphasizes the lawyer Mark Morris.

Either way, experts expect this slowdown in the real estate market to be temporary. This is, they say, just a shock in response to rising interest rates.

The serious lack of goods on the market remains a fundamental problem, which is at the root of the imbalance between supply and demand.

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