There are many things that can happen as a result of a “deal gone wrong.” In our practice, we help our clients and their realtors navigate these rough waters.  Below are some key points to consider.

What happens when the buyer cannot close?

Seller can re-sell the property, sue for the deposit and also sue for any deficiency on the resale. Even if the seller sells for more money, they will likely still be entitled to the deposit. The seller will not sign a mutual release. If you are the listing brokerage, wait for instructions from the seller lawyer before putting the home up for any resale.

 What happens when the seller refuses to close or cannot close?

Buyers have the option to try and force the seller to complete the transaction, through specific performance, or purchase a similar home and sue for any difference. The difficulty is that in order to obtain a return of their deposit, the seller will demand that the buyer sign a mutual release. If a mutual release is signed, then there is no right for the buyer to sue the seller.

 Is a brokerage entitled to sue for commission in either of the above situations?

The question of entitlement to commission is always a separate discussion. If you perform your listing obligation and the seller accepts the agreement from the buyer, you are usually entitled to commission if the seller subsequently agrees to release the buyer from the agreement. Similarly, if a buyer cannot close for any reason, a buyer brokerage can sue the buyer for commission if they have a signed Buyer representation Agreement that indicates that the Buyer Brokerage will be paid commission by the buyer.

The question is whether it is worth the time, the ability to collect any money and the associated publicity that may be involved with any lawsuit.

 Should parties Settle or Sue?

Always better to settle. Before starting any lawsuit, must understand the costs and time of litigation. Also, will you be able to collect anything at the end of the lawsuit. Since it is so uncertain, it is always better to try and negotiate a solution

 Potential Solutions

Extension, VTB, Reduction in the price, Put property back on the market without signing release, Be careful about disclosing you need the funds to do a purchase on the same day

 How to avoid multiple deal failures

Do not close sale and purchase on the same day, Close purchase first – get bridge financing, Then if sale deal does not close, seller is just paying interest that can be charged to buyer if the buyer needs an extension

 What if buyer and seller try to blame you for what happened?

Do not admit liability “I should have known that’, You are covered by insurance – buyer and seller are not, Get lawyers involved early in the process

 Terms to consider in any extension

1.     Buyer agrees to pay an additional non-refundable deposit by bank draft or certified cheque in the amount of $XXXXX to the seller directly, by no later than 4:00 p.m. on XXXXXXXXX, and which additional deposit will  be released to the seller, and which will be applied to the purchase price on closing;

2.     Buyer agrees to pay interest on the balance due on closing of $XXXX at the rate of 4%per annum, as an additional adjustment to the seller on closing.

3.     Buyer agrees that there would be no further extensions of the Closing Date; and

4.     Buyer agrees that all other terms and conditions of the Agreement of Purchase and Sale hereunder would remain the same, the adjustments would remain as at the original closing date of XXXXXXXXXXXXX, and that time would continue to be of the essence.


Contributor: Mark Weisleder, LLP

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