They say good things come to those who wait. This weekend a client of mine that has been waiting for a unit to come up in a certain building finally had his wish come true.
It’s a new building in Cliffside with not a lot of turnover. Ciffside is an up-and-coming neighbourhood and I can actually call it an up-and-coming neighbourhood because it is.
They are still mom and pop shops, some seedy drinking establishments and vacant store fronts. Starbucks found its way into the neighbourhood and that’s how you know it’s on the radar of big business.
He’s been waiting for a unit to come up in there since November after he missed out on one in multiple offers.
It was his first time going through a multiple-offer situation, and he was a little hesitant to take my advice.
There were three offers and instead of going in at least full price, he decided to offer less than what I suggested, which was $10,000 over the asking price because he thought he would have a chance to negotiate with the seller.
I told him that in a multiple-offer situation, the seller holds the advantage because there were three offers to choose from. I asked him to go in $10,000 more than the asking price to at least have a good shot of buying the condo.
It was well within his budget even if he went $10,000 over the asking price and to make things better, it was listed with a sell-it-yourself brokerage.
But he stood fast in his position and to make a long story short. He ended up losing the condo and was mad that he didn’t listen to me when he found out it sold for $8,000 more than the asking price.
Fast forward to this weekend, and the unit that we went to look at was a little smaller but had a huge terrace that overlooked a quiet neighbourhood and the lake.
He said he wanted to put in an offer and I told him that because it’s the first day on the market he should expect to pay at least full price for this condo.
He had no problem paying full price for it but he wanted to try for $5,000 less than the asking price. The suggested closing date was in May.
Since he was not in competition, the offer could be conditional on financing and status certificate review.
He was happy with those.
We went separate ways and I headed back to my office to prepare the offer. On my drive back to the office, he called me saying that he only has $10,000 liquid and he will get the other $15,000 within a day from his TFSA account.
I said that was no problem and will make the deposit of $10,000 on acceptance of the offer, and then add an additional $15,000 deposit once the conditions were met.
I typed up the offer like he wanted, put in the early May closing date, and made the deposit structure exactly as outlined above.
I’ve done this many many times over the course of my career without any issues. Ever.
Until this offer.
Once my client signed the offer, I called the listing brokerage to register the offer and called the agent to talk with her about the offer.
I explained the deposit structure and right away she said “My clients will be concerned with a $10,000 deposit.”
“It’s a $25,000 deposit, only split into two cheques,” I explained.
“Well, I doubt my clients would accept that.”
Now I’m angry.
I hate when agents hide behind their clients like this.
“I didn’t know homeowners, especially first-time home sellers were so well-versed in real estate matters.”
“Well generally, here in Toronto, deposits are 5%.”
I couldn’t believe she just said that to me; here in Toronto…
I took a deep breath and tried not to get as condescending as her, and said;
“Since when? Just because that became the norm when the market was white hot in order to gain an edge in multiple offers, doesn’t mean it’s a hard rule. Are we in multiple offers?”
I don’t blame her for wanting a 5% deposit, I’d ask for the same thing, but I’m not saying my clients will be concerned with this deposit.
To me, that kills any sort of authority she may have had.
If I was the listing agent in this scenario, it would just be a direct statement of wanting to see more money on the deposit or I will advise my clients to respectfully decline the offer. Another option would be to counter-offer with our expectations of a deposit if the other terms in the offer were good to work with.
But the real issue was she did not understand the deposit structure because she has probably never seen it before.
A lot of agents have only ever known a seller market.
She didn’t understand that 5% split into two payments is still 5%.
You may be wondering why 5% is what a deposit “generally” is with an offer.
If you look at the percentage they’re asking for and think about what the “typical” commission is to sell a property, you may see a correlation.
Sometimes, between the offer being accepted and the closing date, something could happen where the buyer suddenly can’t close, or gets cold feet and wants to get out of the deal.
You know, breach of contract.
There is a certain term in contract law called specific performance. It is the legal enforcement of a contract that has been breached, and in a scenario where a buyer decides they want out of the deal, the seller is still on the hook to pay commissions because an agreement has been reached between the seller and both real estate agents.
The agents have fulfilled their part of the agreement. They brought a deal together. The buyer decided to pull their end of the deal and now the seller will have to sue the buyer for damages and breach of contract.
Having that five percent deposit is a good way to ensure that the seller is able to pay the commissions without dipping into their personal funds.
The seller doesn’t automatically get the buyer’s deposit money to use. The deposit will stay in trust until a court order either releases the funds to the sellers, or to the buyers after they get the pants sued off them and have to pay damages.
Anyway, the entire point I’m trying to make here about the agent telling me the owners are concerned with the deposit is bullshit. Just tell me straight up if you’d like to see a bigger deposit. Plus, they didn’t even look at the offer.
After much back and forth, I told her the offer is a valid offer and there was no reason to be negotiating before the sellers have even looked at it.
I once again explained that the deposit was still $25,000, it just wasn’t all in one cheque at the same time.
Sighing, she said she’ll present it and try to explain the deposit but she doubted they’d accept it.
Whatever, do your best, I felt like saying.
A couple of hours later, the agent called me and said that her clients would only accept the offer as-is if my client would pay full price.
“So, if he can give you a deposit of $25,000 in one cheque they’ll accept the offer price I have now?”
Wow, she must have her Certified Negotiations Expert certificate…
I called my client and explained the deposit issue the agent was having.
He told me he’ll just take the money from his line of credit to make up the difference and put the money back in once he gets it out of his TFSA.
I called the agent and told her to counter the offer with the change of deposit and keep everything else the same.
My client was only too happy to save the money on the purchase and I guess the listing agent was happy to get the deposit done her way, but accept $5,000 less than the asking price on the first day her client’s condo was on the market.