Last spring, “the market was so hot that vendors were able to sell most properties within a day or two; many above the asking price,” writes Laredo, principal of Laredo Law. “Real estate agents were advising their vendors to reject all offers that contained conditions because of the ability of the vendors to pick and choose among multiple offers.”
In the article, she examines the negative impact that the omission of three common conditions may have on buyers.
Conditional upon building inspection
“The common law is that there is no representation or warranty as to the fitness of a building structure in an agreement of purchase and sale unless specifically stated in the contract,” Laredo writes. “There is no obligation upon a vendor to disclose any defect in the building unless he has notice of a latent defect that a purchaser will not likely discover upon a reasonable inspection.”
Failure to disclose such a latent defect, she writes, constitutes civil fraud and may entitle the purchaser to rescind before closing or claim damages after closing — the exception being latent defects known to the vendor and the purchaser takes the building “as is.”
In order to protect the purchaser against defects in the building, drafters of agreements of purchase and sale “developed a practice of inserting a condition in the agreement to make it conditional upon the purchaser conducting and being satisfied with the results of a building inspection,” she writes.
However, during last year’s real estate frenzy, this condition began to disappear and the purchaser’s position reverted back to the common law principle of “buyer beware.”
Conditional upon review of status certificate
When it comes to the resale of a condo unit, the purchaser will have an opportunity to review the status certificate of the condominium corporation after the initial execution of an agreement of purchase and sale, Laredo writes.
“A purchaser will be interested in such matters as the state of the reserve fund, any anticipated or levied special assessments, any anticipated repairs and whether the vendor is up to date in the payment of common expenses,” she states in the article.
The usual practice is to make the agreement conditional upon the purchaser obtaining the status certificate package, having it reviewed by a lawyer and waiving the condition within a fixed number of days after final acceptance of the original agreement of purchase and sale.
“If the purchaser, at his own discretion, is not satisfied with the results of the review, he will not waive the condition and the agreement will either expire or it will be renegotiated,” Laredo writes.
She notes this is another condition that began to disappear when the market heated up — leaving the purchaser to accept the state of the condominium corporation, without knowledge of all the facts.
Conditional upon financing
Laredo states that because the majority of real estate purchases are financed with a mortgage, “the practice has been to make a purchaser’s offer conditional for a fixed number of days upon the purchaser obtaining a satisfactory commitment for first mortgage financing.”
When the market became red hot, “vendors were refusing to accept a condition on financing, or any other conditions, because there was usually another prospective purchaser available who was prepared to gamble upon the availability of financing and make an unconditional offer to purchase,” she writes.
“It is common knowledge that a frenzied real estate market takes a mental toll on prospective purchasers who see the price rapidly increasing while multiple people are bidding for the same property,” Laredo writes. “What is not as well known is the fact that significant contractual benefits designed to safeguard the interests of purchasers are, in practice, no longer available to them.”