The Risks of “Clean Offers” and How to Mitigate Them
The real estate market is often in a frenzy. When this happens, many buyers resort to “clean offers”. A clean offer is one which contains few to no conditions and has been increasingly adopted as a tactic to outbid other offers in a sellers' market. The fewer the conditions in an offer to purchase, i.e. financing, or inspection, the more favourable the offer becomes from the vendor's perspective. However, the risks to the purchaser are, as a result, increased. This article will briefly discuss a recent court decision which dealt with a “clean offer” and acts as a cautionary tale for buyers.
In Masoomi v Chen (2022 ONSC) the purchaser entered into an Agreement of Purchase and Sale (APS) to purchase a real property in Markham, Ontario. The initial APS outlined a conditional provision that the buyer needed approval for mortgage financing before firming up the agreement. This was struck out from the APS to make the offer more attractive. On closing, the purchaser was unable to obtain a mortgage financing and defaulted on the transaction.
The court concluded that the vendor's solicitor tendered to the purchaser's solicitor (this means they were ready, able, and willing to close on the closing date) while the purchaser was in breach of their obligations under the APS. Following the breach, the vendor re-listed the property on the MLS and sold it at a lower price. The court held the previous purchaser liable for the difference in the sale price and awarded damages to the vendor for that amount. In addition, the purchaser was ordered to additional damages, including:
The vendor's mortgage payments for the period between the purchaser's breach and the new closing; and,
Property taxes, hydro and gas charges, and home insurance costs for the said period,
The above case shows that a clean offer can be quite costly to a purchaser. Yet, there are obvious financial advantages if such an offer is executed with care and due diligence. For example, the purchaser can buy a property at a lower price if they waive certain conditions for which they have understood and guarded against the risks, such as obtaining a mortgage pre-approval prior to making offers, having the draft offer reviewed by a lawyer, or bringing a construction professional with you to view the property, in lieu, of a formal inspection.
Do not let a "hot" real estate market make you less thorough in your transactions. Even when the risks are low, if they materialize, they may lead to a host of unnecessary problems which will consume a lot of your time and money. You can act both fast and smart with the right professionals around you. A good real estate lawyer should be able to review the APS, before you firm up the agreement, and provide you with advice on how to best protect your interests, money and assets.
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