Real Estate Market Changes in Ontario
Disclaimer: This article on the GTA real estate market is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
In Ontario, especially in the GTA, we have seen the housing market cool recently. For example, the Toronto Regional Real Estate Board (TRREB), reported that the average home price for the region costs $121,738 less than it did at the February price peak, a 9.1% drop.
This is good news for potential first-time buyers who have been waiting for prices to cool off before jumping in. It’s also good news for people who are looking to downsize or move to a more affordable neighbourhood.
However, for those that put in unconditional offers months ago, they may be caught in a precarious situation.
This article will outline the issue many buyers are facing, and how it can be addressed.
Regardless if you are a buyer or seller affected by this recent cooldown, the most important thing that you can do is have a real estate lawyer that you can trust. You need a strategic advocate to help you navigate this tricky situation. Look for someone with the credentials and competency to help you achieve the best result possible, like the team at Beeksma Law.
The Problem: The appraisal value is lower than the offer.
When the market peaked, bidding wars were common and high offers were common. However, as the market slides, the property’s value is no longer reflective of the offer.
This means that those trying to obtain a mortgage may find themselves in a position where their financing is at risk. Their lender may now be unwilling to provide the same level of financing, as they are only willing to loan money based on the appraised value of the home.
This can present a major problem for buyers who have put in an offer that is well above the appraised value. Since offers were being submitted without conditions, these buyers may find themselves in a difficult financial situation.
In fact, we recently had a case where we acted for the sellers and the buyers found out shortly before closing that they were short $95,000. That is a significant amount of money to come up with on such short notice.
What can you do as a Buyer?
If you are in this situation, the first thing that you need to do is reach out to your lawyer and discuss your options.
One thing you should definitely not do: Don’t ask for an extreme abatement (or price reduction) that is inconsistent with the reason you’re asking for it. This will likely not be successful and is a surefire way to sour any future negotiations.
For example, a colleague told me of a situation recently where a buyer asked for a $100,000 abatement. The reason they gave? Their home inspector found water damage on some of the ceiling tiles – a pretty weak argument.
So what can you do? Honestly, once it’s a firm deal, your options are limited. You’re legally obligated to purchase the property on the closing date on the terms agreed upon. The best you can do is try to work something out with the sellers. That may be in the form of an abatement or a delayed closing. See if the vendor will agree to a short extension (for example, a week) to give you time to secure additional funding.
Remember, a seller has no legal obligation to agree to an extension. However, with a falling market, they may agree to a short one.
The most important thing here is to be upfront, negotiate in good faith and be honest.
Avoiding this scenario
If you are currently looking to buy a house and want to avoid this scenario, there are two things that you can do:
- Include a financing condition with your offer. This will protect you in the event that your financing falls through and you are unable to obtain a mortgage. Make sure that you have a realistic understanding of the market value of the property. This way, you can avoid overpaying for a property and find yourself in a difficult financial situation. If you’re not sure what a fair price is, speak with your realtor.
- Make sure you have sufficient funds to cover any shortfall. If you are buying a property and worry that the appraised value may come in below the agreed-upon purchase price, make sure you have enough funds to cover the difference. This way, if the financing does fall through, you will still be able to close on the property.
Finding the right legal counsel when troubles arise
Situations like this make it even more important to have an experienced and strategic lawyer on your side (such as the lawyers here at Beeksma Law) to effectively and strategically come to a resolution.
There’s a significant benefit when your real estate transactional lawyer is also a real estate litigation lawyer. You get an advocate who knows how to persuade the other side to cooperate or protect you in the unlikely event of a lawsuit.
Simply put, you don’t want the cheapest lawyer that you can find, especially as the market changes. You really do get what you pay for. Instead, you want a team that is known for their expertise, experience and professionalism.
When it comes to finding a lawyer for your real estate transaction, do your research and ask around for referrals. If you’re looking for a top-notch team of real estate lawyers in Ontario, we invite you to contact us. We would be happy to chat about your transaction.