Should the Listing Agent Insist on Proof if Inspection Fails?

By
Commercial Real Estate Agent with RE/MAX West Realty Inc., Brokerage (Toronto)

 

Maybe we simply have a case of Buyer’s remorse!

What happens if the Buyer wants out of the deal?

Assume that there is a condition upon inspection, and that such a condition is worded as follows:

“This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.”

For the purposes of discussion the clause contains the following words, the meaning of which is to be interpreted:

“a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion”.

Just exactly what does that mean?

Sole and absolute discretion may have lost its meaning since the “good faith” decision of the Supreme Court of Canada 13 November 2014 in Bhasin v. Hrynew.

There is now a duty of good faith and honest performance in contractual relationships.

So, assume that the Buyer has simply “cold feet”. He bid too high, he wishes that in all of the excitement he had just let this one go. He has a “home inspection condition” in the Offer. There is really nothing wrong with the house. However, as you know, there is always a list of minor deficiencies, no matter what. Assume further that the house was purchased for $1.2 million and it is over 50 years old. It will take a handyman a good part of a day to fix and adjust all the “little things”.

Does the Buyer get a pass?

May the Buyer simply refuse to proceed, indicate that the inspection showed deficiencies which he is unwilling to assume? Must the Buyer offer the Seller the chance to “hire a handyman for a day”?

Seller’s Position

In this case, the Seller knows that the Buyer likely overpaid and wants out, but they are both bound by the agreement which was signed. The other potential purchasers may now have turned elsewhere.

The Seller has the right to insist upon honest contractual performance. Should the Seller be obligated to permit the buyer to withdraw capriciously? There’s nothing in this $1.2 million deal that a couple of hundred dollars wouldn’t fix.

Is the test now an objective test rather than a subjective test for the Buyer?

Request for Proof

The Seller knowing that we are just looking at handyman for a day comments in the home inspection report, should he actually require the Buyer to produce proof?

The minor deficiencies would not meet an objective test. This would not permit the Buyer to exercise his discretion not to proceed with the deal. If the deal “firms up”, then the deposit and further damages (carrying charges and the house price deficiency on resale) come into play.

COMMENT

It is not clear what the long term implications of the Bhasin decision will be, but it certainly changes things from the way they were.

In this case, the list of deficiencies was very minor related to the size of the contract. How does the list go from minor to major? When does the Buyer have discretion?

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

 

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Rainmaker
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William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Anyting disclosed buy  ther buyer as a defect now has to be claimed by the seller.

So in order to protect your seller, do you really want to know?

Nov 21, 2016 05:49 AM #1
Ambassador
1,341,731
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

Oklahoma contracts are very favorable to the buyer so proof is not an option. You can walk away succesfully regardless of price of repairs.

Nov 21, 2016 06:12 AM #2
Rainmaker
1,365,594
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Interesting, in Ontario, it's buyer beware

Nov 22, 2016 01:08 AM #3
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Rainmaker
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Brian Madigan

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