Purchasing a New Home:
What Could Go Wrong?
Timing! I keep blogging about timing because it is one of the biggest problems for real estate transactions. Issues with timing are hugely stressful; they are the most common reason for an increased legal account. And, no one likes to pay more in legal fees than they thought they were going to have to pay!
When I talk to my clients at RMLO Law LLP in Edmonton about timing, I tell them how much time they need to properly complete their due diligence before making their deal unconditional. Then I tell them how much time we need to actually close their deal after going unconditional. Invariably, the first question is, “why do you need that much time?” The answer is because of all the documents and people involved. See my blog post on why you need a real estate lawyer when buying or selling property in Alberta and all the things that happen behind the scenes to make the transaction safe, secure, and smooth. The second question is, “I know we haven’t given you quite that much time, but what could go wrong?”
I recently completed a transaction for a wonderful couple purchasing their dream home. Like most buyers, they needed a new mortgage. They called to give me the heads up that their deal was on the way. I hadn’t seen any paperwork yet so I asked, “when does your new purchase close, and when are you getting the keys to that dream home?” They said, “in one week, is that enough time?” I gulped. Not wanting to immediately be the voice of doom and gloom, I said, “if it’s a nice clean deal and we get paperwork tomorrow from both your realtor and your lender, we can probably close on time.”
Apprehensively, they said, “what do you mean, probably? We need those keys one week from today. The moving truck is booked!” And then they added the classic question, “what could go wrong?” Again, I didn’t want to unnecessarily stress my wonderful clients, but I had to say that many things can go wrong; it’s a list as long as my arm!
We said goodbye, and I went looking for the paperwork. Unfortunately, this turned out to be the deal from hell. There were many problems that affected timing. To start, the paperwork was not forthcoming, and so I had to make a lot phone calls just get the file started. By the time we received the realtor and lender paperwork, there were only three days left before the closing day… In the end, we had to negotiate an extension, but we successfully closed the purchase of their dream home. Still, it was a tough go. All the extra work meant an increased legal account.
I thought it might be useful to provide a segment of my reporting letter, which explains what happened. This deal is a good illustration of some, but certainly not all, of the answers to “what could go wrong?” The names of my clients have been changed to preserve their privacy.
Dear Ron and Sylvia,
Your purchase is now completed. I know it was stressful and more expensive than you thought. Per your request, here are some comments on what happened in your new home purchase.
Firstly, all deals have issues. Given sufficient lead-time, we can normally problem solve in a way that preserves the basic legal account. Unfortunately, extra problems cost you more money when time is short; we have to drop everything and work overtime to solve them. The extra issues that showed up in your new purchase were:
Divorcing sellers who were not amicable. When we needed answers from the seller’s lawyer, it turned out to be to sellers’ lawyers since each of the sellers was separately represented. For every issue we have to deal with it took about twice as long as it normally would.
Confusing permit information. The sellers had constructed a brand-new secondary suite in the property and promised to give you permits. You provided what the seller gave you. It looked like the required permit information but it turned out to be a comment from the City on a neighbour’s complaint about the suite. Very confusing and took a lot of tracking down to get the correct permits.
An unhelpful sellers’ realtor. You needed access for inspections and the sellers’ realtor was almost always unavailable to provide you a key. It was a continual fight to get what the contract said you are entitled to.
Difficult lender. Your lender was not one of the five big banks, which are easier to deal with. The lender’s paperwork was voluminous and difficult. As we prepared and forwarded paperwork to the lender, they required many time-intensive (and what we thought were unreasonable) changes. However, you know the golden rule of lending: “He who has the gold, makes the rules.” There was nothing we could do but accept and keep amending until they were satisfied.
Out of province partner. You needed Ron’s Dad to be on the title and mortgage in order for you to qualify. He lives out of province, which meant all the paperwork had to be scanned and sent to his lawyer.
Language issues. All our paperwork is, of course, in English, but your Dad and his lawyer are more comfortable in French. Ron had to do a lot of translating and explaining.
Extending the transaction. We were unable to meet the initial closing date because of the above problems. An extension had to be negotiated with the seller’s lawyers, which we ultimately got, but which, like all other issues with the sellers, took extra time because of the divorce.
To combat the endless list of things that could go wrong, it’s important to realize that having lots of time is your friend. Extra legal accounts often come from having to sort out various issues on or close to the completion/possession date. If we have sufficient time to sort out issues well prior to the completion/possession date, it goes a long way towards making problem-solving smooth. Rushing typically means extra fees because we have to drop everything and do extra work to solve the problem.
How much is “lots” of time?
Timing is something that needs to written into your purchase offer. Consider the following:
- Removal of conditions
When writing your offer, try to give yourself three weeks for diligence on your conditions such as financing and inspection. Line up a home inspector before you make the offer, but sometimes scheduling the inspection can be tricky when coordinating everyone’s schedules. Tell your lender/broker well ahead of writing the offer that you are planning to do a real estate deal. Getting three weeks for financing gives your lender time to put together the paperwork and/or gives your broker time to really shop around for you.
- Closing date
Instead of writing a specific completion/closing date in your offer, try: “30 days after final condition removal.” Again, this gives everyone on your real estate team a reasonable amount of time to do their job, sort out problems, deal with issues, and close on time.
Know that some sellers won’t agree to your suggested timing. You will get pushback from sellers and their realtors. Be firm. Maybe you lose the deal if an unreasonable seller makes timing demands. But, do you want an expensive, stressful experience like the one my clients (above) just had?
Law firms can usually close a deal with insufficient timing—but not always. It’s up to clients to decide if they want to take the risk that the deal can’t be closed in a short time frame. Even if it closes, there’s the stress and extra legal fees that go with not having enough time.
But remember, sellers do not have to extend the time for closing. They almost always do, but they don’t have to; you can’t rely on getting that extension. In a worst-case scenario, the deal could fall through, forfeiting your deposit. So, I suggest you do your best to write your next real estate deal with my suggested timing guidelines.
Timing and Flat-Rate Legal Fees
One of the biggest advantages to good timing in a real estate transaction is being able to predict how much the lawyer’s fees will be. At RMLO Law LLP in Edmonton, we offer flat-rate legal fees for standard Alberta real estate transactions—as long as you give us enough time! If you’re buying or selling property in Alberta, get in touch with Barry now.
“Timing, Losing Time, Clock” image by mohamed mohamed mahmoud hassan used under a CC0 Public Domain licence.