Consider it the 'ghosting' of the real estate industry: prospective homeowners are submitting offers -- often in multiple offer situations -- and then failing to show up with the deposit cheque.
It's a scenario that Marvin Alexander, president of Keller Williams Realty Centres, a Greater Toronto-based brokerage, is calling a "disturbing trend" in the Toronto-area.
In a piece written for REM, a real estate industry magazine, the broker says that in September he saw an uptick in buyers with accepted offers not delivering a deposit. His brokerage alone saw “nearly 30” of these cases last month.
What's more concerning is Alexander says he's heard similar stories from other brokerages across the region and suspects it might even be a Canada-wide trend.
"It is speculated that this is being done while buyers are submitting offers on numerous properties simultaneously, with the intent to later sit back and decide which property they like best, or the one where they got the best deal," wrote Alexander. "Then they do not show up with the deposit cheque, as called for in the offer for all other properties that they are no longer interested in pursuing."
READ: What Exactly Happens After An Offer Is Accepted?
When it comes to buying a home there are several terms in the real estate contract besides the price, and the deposit is one of them. Buyers will offer a certain amount of money in the form of a deposit as a promise to the seller that they are financially capable and ready to commit to buying the home. The bigger the deposit amount, often the more attractive the offer will be to the seller.
Once the offer has been accepted, the buyer must submit the deposit in the form of a certified cheque or money order within 24 hours of offer acceptance. The funds will typically be deposited in an account with the listing brokerage and will go towards the down payment of the home if all goes well and the deal closes.
Alexander says he believes this unfortunate situation is a result of multiple offers. He speculates buyers might be placing offers on more than one place, just in case they don’t get the first one. In his article, Alexander added that some of these buyers may have also placed these bids during bidding wars -- most likely "with the intent to later sit back and decide which property they like best, or the one where they got the best deal."
The broker suggests they then do not show up with the deposit cheque, as called for in the offer for all other properties that they are no longer interested in pursuing.
However, Alexander says many times these are “firm” unconditional offers that are being submitted. Conditions make a sale “conditional,” which simply means that the deal cannot be completed until all conditions that are part of the offer have either been fulfilled or waived by their respective expiry dates.
"Due to COVID-19, more and more offers are being submitted via email, with the deposit cheque due “upon acceptance”. What we are experiencing is that often, the Realtor drags out the process of delivering the deposit cheque, or their buyer does, although the offer calls for delivery of the deposit upon acceptance," wrote Alexander.
And as you could imagine, when someone fails to show up with a deposit cheque, it leaves the seller in a serious state of limbo, as the seller is left in the position of not even being able to look into buying a property and starting to move on with their lives, says Alexander.
As for other brokerages, Jenny Bosworth, a sales representative for Sutton Group, says -- luckily -- she hasn't heard of any situations where buyers were submitting offers on numerous properties at the same time and then failing to deliver a deposit cheque happening at her brokerage, which represents around 140 agents downtown.
Though Bosworth did say that a colleague of hers experienced a similar situation in which a house was sold and the deal was meant to go through, however, the buyer cooled off the next day and failed to bring in the deposit cheque. The seller was then in the position to make the choice to return to the market and move on with the sale.
Bosworth said that situations like this are concerning and that, in reality, the seller could choose to sue the buyer for failing to deliver the deposit as it could be determined a breach of contract.
She added that she thinks deposits are now more important than ever before. "It's been more important now, in what could be considered a hot or changing market, and with all the uncertainties we're facing presently, that a buyer should be ready with a cheque in hand," said Bosworth.
"When they're not prepared to deliver it, I think it has more to do with getting cold feet than with putting multiple offers on multiple properties," she added.
"My counsel to buyers and sellers now is to put more emphasis on the deposit, if you don't have a deposit ready, it's even more of a flag right now," added Bosworth.
In order to deter this behaviour, and shield seller clients from this "hardship" as best as possible, Alexander created a Realtor Offer Covenant Agreement that his brokerage is having executed by the co-operating brokerage when submitting an offer on any property, whether in multiple offers or not, confirming that:
With files from Lisa Rennie.
