When a deal doesn’t close, it is important for real estate agents and brokerages to gather the correct information to understand both the rights of your clients and your own right to collect commission. Let’s see what happens in the following situations:
1. The buyer can’t close because their financing fell through.
In this situation, it is best to determine if you can negotiate an extension to see if the buyer can resolve their situation in a timely manner. This may involve paying an additional deposit plus interest on the closing balance in order to get the seller to agree.
If no extension is possible, the seller could notify the buyer that as a result of the breach of contract by the buyer, they will be re-selling the property and will be suing the buyer for the deposit and any deficiency if they sell for a lower amount.
For example, the original sale price was $300,000, with a $5,000 deposit. The buyer doesn’t close and the seller re-sells the property for $280,000. In this situation, the seller could sue the buyer for the $20,000 shortfall. Even if the seller resold the property for a profit, they could still sue the buyer for the $5,000 deposit.
2. What if the buyer and seller sign a mutual release in the above situation, directing the listing brokerage to return the deposit to the buyer?
If a mutual release is signed, the seller can no longer sue the buyer. The listing brokerage must return the deposit to the buyer, as directed.
3.What if the deal did not close because there was a problem on title or there was a tenant on the property who would not vacate before closing, in violation of the agreement?
In this situation, the seller would likely not be able to sue the buyer. However, the listing brokerage may have a claim for commission against the seller and as such, should be careful before signing any mutual release.
4. As a listing brokerage, what should I obtain when a deal does not close before re-listing any property for sale?
Since you may not know the reasons why the deal did not close, you should wait for either a mutual release or a written direction from the seller’s lawyer that since the buyer has breached the contract, you can go ahead and re-list the property for sale.
5. Are the listing and buyer brokerages required to sign the mutual release?
There is no legal requirement for a brokerage to sign the mutual release that is between the buyer and the seller. However, even if the release is not signed by the brokerages, the listing brokerage must still follow the written direction of the buyer and seller about releasing any deposit in their possession. If a brokerage has a concern as to whether they may have a legal claim for commission and are thus hesitant to sign any mutual release on this basis, they should obtain legal advice before proceeding further.
By understanding what happens when deals do not close, it is hoped that you can take the proper steps to protect both you and your clients should this ever occur.
Mark Weisleder is a senior partner, author and speaker at the law firm RealEstateLawyers.ca LLP. Contact him at mark@realestatelawyers.ca or toll free at 1-888-876-5529.
