This post was inspired by a home in Oshawa that sold firm in May of this year & was due to close in August - but didn't. In September it sold for $85,000 less than it had sold for in May.
In Part 1 I wrote about what happened when a client of mine breached his Agreement of Purchase & Sale back in 2017 as well as a rundown of all the things that COULD happen when a contract is breached - in case you missed it, go back & read Part 1 HERE
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| Thalia & Melpomene Comedy & Tragedy/Happy & Sad (Sums up the 2 different client experiences I've written about in 1 handy dandy picture!) |
I also mentioned how I had another client who benefitted from a breached contract, so we're going to use that as an example to show how a bad situation can turn into a good one for both a seller & a new buyer when that happens!
Sometimes it pays to be 2nd....or 3rd or...whatever number after 1st, who ends up getting the deal done! Side note, I've often seen this hold true when negotiating with an unrealistic seller with an over-priced listing - first offer gets rejected & the buyers move on. But then subsequent offers are similar (or less). IF the seller has been paying attention to what the market (aka buyers) is telling them about the value of their home, then it's one of those subsequent buyers who reaps the benefit of what those previous buyers/offers were trying to accomplish!
But I digress...so here's how my client benefitted from another buyer's breach of contract:
Back in early 2016 my clients fell in love with a home that had been on the market for some time already - unfortunately they weren't ready to move forward at that particular moment & it was over budget as well, so we had to let it go. A couple of months later, the home sold & then it was really over...
Or so we thought! A month after it sold, the listing agent reached out to me because there was going to be an "anticipatory" breach & they were looking for a new buyer. While my clients still loved the house, they still weren't quite there timing-wise & price was still an issue too, so it was still a no-go for them!
Before I go any further, let's talk about the "anticipatory" breach. It was 2 1/2 months before the scheduled closing date when the buyer received a medical diagnoses that had them deciding that it wasn't a good idea to proceed with purchasing the house. Because it was well before closing, the breach was "anticipated" to happen in the future, rather than being something that was happening "now".
You may recall in Part 1 where I mentioned that it is the seller's responsibility in a situation like this to "mitigate their losses" - meaning minimize - which means getting the house back on the market as soon as possible & at a price that can be defended in court - often this is done by listing it at or close to the price that it originally sold for.
Back to the story once again..Fast forward 3 weeks & my clients' ducks were finally in a row & miracle of miracles, the house which had become the bench mark for them with every other house we looked at, was still available! So we took the plunge & submitted an offer!
And this is where things got a little different, because we weren't just negotiating with the sellers through the listing agent, but also with the lawyers! And it almost like seemed like the lawyers had the final say! I remember a few times being told "the lawyer's never going to go for that..." And the reason for this goes back to "mitigating the losses" . The sellers weren't free to accept just any offer & then go after the defaulting buyer for the difference. It had to be defensible as the best offer they could get!
Making the seller “whole” means that the seller is entitled to be put in the same position as the seller would have been had the buyer completed the transaction as scheduled.
In the end we were able to negotiate a $15,000 reduction off of the original selling price! It brought the price more in line with what they wanted to spend & the timing worked perfectly for them as well - it was such a win for them! Everything felt very much "meant to be" for them with this house!
Now it's important to note that at that time in 2016 we were not in a declining market, in fact, we were just a couple of months away from the infamous run up in prices we had between the summer of 2016 & spring of 2017! So it's not like the house was worth less than what it sold the first time! It was the fact that the house had been on the market for so long with no other prospects waiting in the wings & the defaulted buyer's deposit was available to bridge the gap between the original selling price & the new lower selling price that enabled this deal to come together for my clients.
Individual circumstances play such a big role in real estate & they can't always be duplicated. In this case, length of time on the market + an offer on the table negotiated as much as it could be + a forfeited deposit that would make the sellers "whole" if they accepted the offer = a defensible offer to accept. If any of those circumstances were different, then perhaps there would have been a different outcome...
The sellers' damages in this case were the $15,000 difference in selling price + 1 month of carrying costs for the property - because our closing date was 1 month later than the original + additional legal fees to deal with the breach. The defaulted buyer's deposit was $25,000 & the lawyers were very strict about keeping the losses under that amount.
When all was said & done, the sellers probably came out ahead by $5,000 & my clients by $15,000 - and that's how my clients benefitted from another buyer's breach!
One thing you may have noticed with both of the stories I've shared, is that the losses were small (relatively speaking, they are) & the sellers did not pursue damages beyond the deposit.
Coming back to the failed sale that inspired this blog series...we're talking an $85,000 loss on the selling price, plus carrying costs for an additional month & a half between when the house was supposed to close with the original contract, & when it closed with the 2nd contract...plus any number of the damages from the list in Part 1 that we don't even know about.
It seems very unlikely that the sellers got a large enough deposit to cover all of that & I think it would be a safe bet that the sellers will be taking those original buyers to court for the deposit + $85k, + the rest of the damages! I mean, if you're going to court, you might as well make it count, right?!
So I thought that this was where I was going to end this - I just have personal experience with the 2 stories, both from the buyer perspective, BUT I've come across some interesting tidbits around what happens when the SELLER refuses to close... so stay tuned for a Part 3!
Until next time,
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