Even when caught up in bidding wars, don’t rush it. You may end up signing documents that let the vendors off the hook for myriad issues
July 18, 2018
If unaffordable prices, bidding wars and news that the real estate industry is supplying questionable statistics to the public isn’t enough, homebuyers must also deal with so-called “standard” forms that are written to favour sellers.
“The agreement of purchase and sale that most homebuyers see is skewed in favour of vendors,” says Sid Troister, a real estate lawyer with Torkin Manes LLP in Toronto. “From purchasers’ perspective, the document shouldn’t be treated as standard at all, because you may be agreeing to something you know nothing about.”
By way of example, standard agreements usually have purchasers agree to accept title subject to restrictions that have been registered on title. One such restriction, not uncommon, prohibits parking commercial or other types of vehicles in the driveway.
“What if you have a large truck you use for your business, or a large van, or a boat?” Troister asks. “That’s why you should be reviewing the agreement of purchase and sale with a lawyer before you sign it, telling them what you expect and what you want.”
To be sure, bidding wars don’t pause for the legalities. But, hype aside, only a very small percentage of homes are subject to bidding wars and most of them are confined to the hot markets of Toronto and Vancouver.
Even in the case of bidding wars, however, ignoring legalities can lead to harsh realities. Purchasers may be signing documents that let vendors off the hook for “future intended uses” and that subject titles to easements in favour of public utilities.
“A young family that wants to put in a pool may not be able to do so because a sewer easement prohibits digging within 50 feet of the boundary, and here you are, having bought the house largely because of the spacious backyard,” Troister says.
Title insurance provides some protection to buyers. “There isn’t a house deal in Ontario that doesn’t involve title insurance,” Troister says.
But title insurance isn’t a panacea. It’s designed primarily to protect title to a property.
“That means someone who buys a great three-bedroom bungalow in the country with the intention of putting an addition on the place won’t be covered if the municipality refuses permission because the property is in land zoned hazardous or a flood plain,” Troister says. “The purchaser ends up with a house that is not the one she intended to buy.”
Title insurance also does not cover the condition of the property. “In Toronto, people will buy any piece of shit,” says one veteran real estate lawyer. “Then they find the place infested with mice and want the title insurer to fix it, but that’s clearly not part of the coverage.”
The point is that it may be worth having a lawyer do a title search even before signing the agreement of purchase and sale. “If you don’t protect yourself from the outset, you may find that the agreement you signed is a contract you’re stuck with and have no remedy,” Troister says. “There is no such thing as ‘It’s standard and it’s what everybody signs,’ because what you sign has your name on it and becomes your personal obligation.”
The terms of the agreement of purchase and sale assume even more importance when markets are soft or falling and purchasers are looking for ways out of their deals. “Whenever they can, and especially where the market isn’t too hot, people need to take their time,” Troister says. “They should be doing independent investigations to ensure that they’re getting the property they expect.”
And scrutinizing the listing agreement can be as important for sellers as it is for buyers. Craig Carter, a real estate lawyer in Toronto with Fasken Martineau Dumoulin LLP, says real estate agents can make things difficult for vendors by insisting that listing agreements are “standard” — including the terms governing the payment of commission.
“The reality is that changes can be made, although MLS makes it really awkward to do so, and often the broker has to give you a side letter,” Carter says.
There is no such thing as ‘It’s standard and it’s what everybody signs,’ because what you sign has your name on it and becomes your personal obligationSid Troister, real estate lawyer, Torkin Manes LLP
Sellers are frequently under the impression, for example, that they must pay commission only when the property is sold. But the terms of the standard contract entitle agents to commission the moment they deliver an offer that meets the listing terms — whether it is accepted or not.
“That can be a problem where people have lowballed their home in hopes of instigating a bidding war, turn down offers at the listed price and then don’t sell because subsequent offers don’t meet their original expectation,” Carter says.
Purchasers should also exercise caution when signing on with an agent.
“The standard purchaser’s agreement says that the realtor will be your exclusive agent for 90 days,” Carter explains. “So if another agent brings you a property within that period and you decide to buy it, you could be on the hook for the commission to the original agent.”
And forget about arguments that rely on the old “nobody reads these documents” approach. “The courts have made it clear that if you don’t read it, screw you,” Carter says.
Finally, Carter warns clients about the practice known as “double-ending,” where an agent represents both vendor and purchaser.
“Dual agency is straight greed,” Carter says. “So much so that they’ve banned it in B.C.”
The British Columbia ban, instituted on March 15, followed on an undercover investigation by CBC’s Marketplace in 2017. The show’s reporters posed as homebuyers and visited 10 top-selling agents in the GTA.
Six of the agents promised to share confidential information and give the buyer an advantage if they represented both parties. One agent even flouted established rules by revealing the precise bid made by a competing buyer. Another said she could use her position to push the buyer’s offer through before other bids came in.
“There’s no way we should allow dual agency in Ontario,” Carter says. “It’s a clear conflict of interest.”