You\u2019ve finally done it!\u00a0 In a tight market you\u2019ve managed to find a home that suits your family\u2019s needs perfectly, you\u2019ve submitted the winning offer, and only a few more weeks stand between you and your possession day.\u00a0 Insurance is in place, mortgage paperwork has been signed at your lawyer\u2019s office, the seller seems to be on top of getting the handful of promised repairs done, what could possibly go wrong?<\/p>\n
Well, in the COVID-19 pandemic era, we are discovering that there are new sorts of things that can go wrong.\u00a0 Simple commitments made by home sellers during purchase agreement negotiations are, in some cases, turning out to be hard to fulfill.\u00a0 I\u2019ll use a refrigerator as a hypothetical example.\u00a0 Let\u2019s say that during a home inspection it was revealed that the ice maker on the fridge doesn\u2019t work.\u00a0 The seller had been told a year ago that it was just a matter of replacing a five-dollar part, but they got busy with other things, and they never used it anyway, and so the work didn\u2019t get done. \u00a0The seller has committed to having it repaired prior to your possession day.<\/p>\n
What the seller and their Realtor may not have considered is that it can be really hard to get simple work done these days.\u00a0 In some cases local contractors are just too busy, and southern contractors who used to occasionally visit during peak season are no longer making the trip due to COVID restrictions.\u00a0 Also, due to demand, some contractors may have chosen to triage clients \u2013 for example, they may have stopped performing repairs on appliances that they didn\u2019t sell in the first place.\u00a0 In some other cases where the pandemic has slowed down demand for certain types of work, contractors may have left the North, or retired early.\u00a0 And then there is the issue of obtaining parts – we\u2019ve encountered situations where a part that used to be readily available now requires a six month wait.<\/p>\n
If the seller and the seller\u2019s Realtor did not anticipate theses issues, possession day will arrive and, despite the best intentions of the seller, the work may not have been completed.\u00a0 What happens next was tricky even before the pandemic, but it is far trickier now, and it warrants advanced planning.<\/p>\n
When closing day arrives, Realtors are supposed to effectively hand the relay race baton to the real estate lawyers, whose take it from there.\u00a0 But in these cases where work has not been completed or items are not in good working order, prior to sprinting off for the last stage of the relay race, the lawyers for both sides will ask the Realtors what they estimate the cost of having the repair completed might be.\u00a0 If a dollar amount can be agreed upon, those funds will be held back by the lawyers, by means of a “holdback clause” or “holdback agreement,”\u00a0 and will only be released to the sellers once the work has been completed.<\/p>\n
Recommending a holdback amount can be problematic for the Realtors, because although it might only be a five-dollar part and a $100 repair bill, in the COVID-19 era there is no guarantee that the work can be done within a reasonable time frame, or at all in some cases.\u00a0 So, increasingly these days, the only safe response from the buyer\u2019s agent is the full replacement cost of the appliance or item in need of repair.<\/p>\n
Replacing an entire refrigerator for the lack of a five-dollar part may seem extreme, especially to the seller, but what else is there to be done?\u00a0 The seller agreed that all appliances would be handed over in good working order on possession day, and they didn\u2019t exclude the fridge from this commitment, and that\u2019s pretty much that.<\/p>\n
In these situations, the seller, the buyer and their Realtors often disagree on the amount that should be held back, or on what constitutes \u201cgood working order.\u201d\u00a0 It is up to the lawyers representing each side to reach an agreement.\u00a0 But what can make matters much worse is that sometimes buyers and sellers choose not to have their own legal representation, and instead share a lawyer.\u00a0 This is what many Realtors refer to as \u201cdouble-ending.\u201d\u00a0 If there is a disagreement, a lawyer who is double-ending is unable to advocate for one party over the other, which pretty much leaves the seller and buyer to either advocate strongly for their own position, or compromise and meet in the middle.\u00a0 But while compromising might generally be seen as a good thing in society, in these situations where there is usually a clear case of someone being right and someone being wrong, the wronged party should not have to compromise.\u00a0 They should be entitled to what was agreed upon in the purchase agreement.<\/p>\n
This is the main reason we strongly recommend that sellers and buyers deny requests by their lawyers to represent both sides (they have to ask you in advance).\u00a0 Allowing your lawyer to represent the other party may seem simpler, and it may even be slightly cheaper, but if things get tricky on possession day, you will regret it.<\/p>\n
So, in a world that is likely to be affected by supply chain and labour shortage issues for months to come, what are a buyer and seller to do?<\/p>\n
Here are our tips for buyers:<\/strong><\/p>\n #1 – <\/strong>\u00a0Have a conversation with your lawyer about holdback clauses and holdback agreements at the earliest opportunity. And let them know that, should one be required, you need it to be in writing and to be detailed.\u00a0 Far too often these things are done informally, which can lead to debates down the road over details such as what constitutes a \u201creasonable\u201d amount of time to have a repair done, who is qualified to make the repair, how many quotes should be obtained, and what standard of work will be considered acceptable?<\/p>\n #<\/strong>2 – <\/strong>Be prepared to pay for the extra legal fees that may result from negotiating a holdback agreement.\u00a0 While we all want to save money when possible, when it comes to legal fees on a home purchase, cost should not be your main consideration.<\/p>\n #3 – <\/strong>During negotiations, if you agree to allow the seller to have repairs done or work completed, ask your Realtor if they have concerns about the particular type of work and the seller\u2019s ability to get it done. It is your Realtor\u2019s job to stay on top of these things and to know which types of work might be problematic.<\/p>\n #4 – <\/strong>Ask for work to be done by the seller several days or even a week in advance of possession day, and ask your Realtor if they would advise inserting a pre-closing inspection term in your purchase agreement. This basically allows you to see for yourself whether or not work was completed, and if not, it gives your lawyer time to negotiate an appropriate holdback agreement.<\/p>\n #5 – <\/strong>Never buy a home through the listing agent, use your own designated agent (a.k.a. buyer\u2019s agent). All of the warnings we\u2019ve provided about having a lawyer work both sides of a deal go triple for working with Realtors.\u00a0 You need to be sure that, if issues arise, you have someone working to secure the best outcome possible for you.\u00a0 The listing agent cannot legally do that.\u00a0 And using a buyer\u2019s agent costs you nothing.<\/p>\n #6 – <\/strong>Never plan to move into your new home on possession day.\u00a0 Give yourself (and your movers) a cushion of at least a day, just in case issues arise.\u00a0 A smooth move-in inspection can result it keys being handed over by noon, but problems like those described above may delay completion of the transaction until the following day.<\/p>\n And here are our tips for sellers:<\/strong><\/p>\n #1 – <\/strong>Make sure that everything in your home is in good working order. If something is broken, get it fixed now.\u00a0 Don\u2019t wait.<\/p>\n #2 – <\/strong>If for some reason you can\u2019t have the item repaired, make sure that your Realtor is aware and that he or she lets potential buyers know in advance. And then exclude the item from your promise of \u201cgood working order\u201d during offer negotiations.\u00a0 There is a space for these exclusions in the purchase agreement.<\/p>\n #3 – <\/strong>If you were unaware that a \u201chard-to-repair\u201d item was in need of repair, and therefore you did not exclude it from your good-working-order commitment, then you should be prepared for the buyer\u2019s lawyer to be asking for a holdback agreement on closing day, and for the amount to potentially be as high as full replacement value.<\/p>\n #4 – <\/strong>Don\u2019t agree to let your lawyer, or your lawyer\u2019s firm, represent the buyer. This is a very normal position to take and your lawyer will not take it personally.<\/p>\n #5 – <\/strong>As mentioned in the buyer list above, if you agree to a holdback, make sure that the agreement is in writing and detailed.\u00a0 Don’t just make these arrangements verbally.<\/p>\n #6 – <\/strong>Don\u2019t let your listing agent work with the buyer. As of January 1st of this year the Northwest Territories Association of Realtors has upgraded its forms, and a listing agent now needs your written consent to double-end.\u00a0 Unless you live in a town with only one Realtor, you should never agree to this.\u00a0 Should things go wrong at closing, you need to be sure that your Realtor is advocating in your best interests, not trying to persuade you to compromise.<\/p>\n At Century 21 Prospect Realty our goal is to define and deliver the gold standard in real estate services.\u00a0 Our Realtors are continually training, learning and staying on top of issues that may impact your real estate transaction.\u00a0 If you are thinking of selling or buying a home this year, get in touch with Yellowknife’s best real estate team<\/a> today.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" You\u2019ve finally done it!\u00a0 In a tight market you\u2019ve managed to find a home that suits your family\u2019s needs perfectly, you\u2019ve submitted the winning offer, and only a few more weeks stand between you and …<\/p>\n","protected":false},"author":3,"featured_media":1078,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[53,55],"tags":[73,74,75,76,77],"class_list":["post-1076","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-education-and-advocacy","category-protect-your-investment","tag-covid","tag-pandemic","tag-supply-chain","tag-closing-day","tag-holdback"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/posts\/1076"}],"collection":[{"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/comments?post=1076"}],"version-history":[{"count":10,"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/posts\/1076\/revisions"}],"predecessor-version":[{"id":1090,"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/posts\/1076\/revisions\/1090"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/media\/1078"}],"wp:attachment":[{"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/media?parent=1076"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/categories?post=1076"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.century21yk.ca\/blog\/wp-json\/wp\/v2\/tags?post=1076"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}