Toronto Central Real Estate

Use 2 deposits for buyer protection

Mark Weisleder

November 11, 2013

  

Unfortunate occurrences are taking place in the Toronto real estate market when buyers have a change of heart after inspecting a home. The sellers are refusing to return the deposit.

Here's what is happening:

Most real estate offers in the GTA today contain substantial deposits, in many cases $25,000 or higher. The accepted offer is conditional on the buyer being satisfied with the results of a home inspection report, completed by a professional home inspection company. The buyer conducts the inspection and then says they are not satisfied with the home, and ask for their money back. The sellers are upset, because if other buyers hear about this, they will ask what is wrong with the house. The seller can't answer because the first buyer does not have to give them a copy of the inspection report.

In general, the courts have indicated that when buyers are trying to satisfy any condition, including a home inspection condition, they must act honestly, reasonably and in good faith. Unfortunately this will have to be proven in court, and the result is that a buyer's deposit could be held up for up to 2 years while this is being argued.

Sellers are not entitled to a copy of the inspection report unless it says so in the clause itself. In my opinion, sellers should always include a clause in any offer that 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 this for themselves, with their own inspector or contractor, and will 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 and it would thus be difficult for a buyer to try and cancel the agreement and argue that they acted in good faith. It is thus very important that buyers always use qualified home inspectors to conduct any inspection of a home.

If a buyer is not in a bidding war, I advise that you consider 2 deposits, a small deposit when the deal is accepted, and a larger deposit 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 their legal rights and obligations relating to conditions before signing any offer to buy a home.