A wave of buyer regret is brewing in several troubled property markets after home prices began to fall and sales tumbled over the past two months.
Real estate agents and attorneys in Toronto and Vancouver say they have noticed buyers are evaluating their options to exit a purchase and sellers hoping to ensure a purchase goes through as conditions have changed drastically from previous highs and breakneck pace.
The country saw a 25.7% drop in the number of homes sold last year and a 3.8% drop in house prices between March and April, the Canadian Real Estate Association said on Monday. The median home price last month was $741,517.
Figures like these have prompted some sellers to consider lawsuits to ensure deals move forward and other buyers to worry about the value of properties they bought years ago but can’t afford and are yet to buy have not taken possession.
“With real estate prices today, there really is no choice but to go all-in, and if you go all-in and then suddenly realize that maybe you’ve made a bad bet and there’s a way out of that bet, you will do whatever it takes to get out of it,” said Mark Morris, a Toronto real estate attorney.
In recent weeks he has seen nine instances of buyers wanting to walk away from deals, but on Monday alone he was approached by three sellers keen to use legal channels to discourage buyers from backing out.
Morris doesn’t cite dating as a trend because it’s unclear how many other lawyers are seeing the same increase, but three queries in one day is his new record. He used to see a case like this every few months.
“Buyers look at the crisis in place and at best feel like they paid too much, but now they have objective evidence of that because markets have started to bounce and fall and are really showing no signs of slowing down,” Morris said called.
“Many of these buyers are faced with a choice of moving on or stepping up and walking.”
People are “terrified” every time the market turns and explores what they can do with the deals they sign, but few walk away because it’s difficult to get out of deals like this, said Phil Sopher, CEO of Royal LePage.
He believes the exception to this pattern came in 2020, when the COVID-19 pandemic hit and people ready to exit the trade had so many unknowns on their side.
Most buyers trying to close a deal this year will not be successful because there is no legal way out, but such cases are inconvenient for sellers, too, Morris said.
“Is a seller really willing to sue a penniless buyer? Will the seller really spend three years in court only to find they have a judgment that cannot be appealed? he thought. “Are they really willing to invest the amount of money it takes to go to the ends of the earth if they can resell? Maybe not.”
In cases where the buyer has deposited money into a seller’s escrow account, that money can only be released with legal action, completion of the transaction, or a mutual agreement not to sue the sale, Morris said. He has seen buyers agree to give the seller the money if the seller mutually agrees to end the transaction.
When a trade ends, brokers can sue for their lost commission, but few go that route as it’s “not a good idea” to take legal action against a client who could always turn to you when trying to make the failed house for sale. transaction again, Morris said.
While Tirajeh Mazaheri has not been sued in Vancouver, broker Coldwell Banker Prestige Realty has seen buyer’s remorse and concerns rising among investors who bought pre-construction homes a few years ago but have not yet taken possession of them.
“A lot of these people think, ‘Will the market justify that price or follow the price I paid and can I get my money back if I want to sell in a year?’ She says.
People who bought early in a building’s pre-construction sales are already ahead of the curve, but those who bought later will have to wait longer to breakeven or make a profit, he said.
Although concerns are at their peak, Mazaheri and Soper agree that markets are recovering and homes remain a valuable investment.
“Anyone who bought a home in this country in 2021 will have their home worth more in 2021 if they bought anywhere near the market price,” Soper said.
“Will it be worth more in a year? It’s harder to predict… but even a year from now, there’s less chance that house will be worth less than it is today.”
This report from The Canadian Press was first published on May 18, 2022.