As a leading real estate lawyer in Toronto, John Zinati has been closely watching the housing market. The latest numbers across the country show that home sales dropped 32% in September in comparison to last year.
Why the huge difference? Low mortgage rates, a drop in new construction, a surge in first-time homeowners, and a desire for relocation saw the housing market at an all-time high a couple of years ago. Today, there are several factors that have caused a sudden shift in all of these market influencers.
Home-buying lawyers in Toronto warn that the current housing market isn’t in the red but rather is in a recovery period. As with all tangible demands, a cooling period occurs after a “hot” season.
In recent months, buyers are halting their plans for a new home, and staying put is beginning to become the norm. Why is this happening, especially at a time when housing prices have begun the downward slide, which should be enticing to buyers?
John Zinati believes the reduction in home purchases is a result of buyers having trouble getting financing. If a buyer is in search mode, they may find the current mortgage rates are too high for their own finances.
More times than not, buyers find their dream home, succeed at an opening offer, and sign the Agreement of Purchase and sale before securing financing. It is at this time the appraisal comes in at a lower amount than the buyer’s offer, forcing the bank to decline to finance. The buyer is left struggling to find financing elsewhere to complete the deal.
There are two avenues for a buyer, and neither one is profitable for the seller. It should be understood that under these conditions, the seller is never obligated to agree to either proposal, legally or morally.
The first scenario Zinati sees is the buyer requesting the seller to lower the agreed-upon purchase price. The seller may accommodate the buyer with a new deal due to concerns about having to take the case to court.
Another position seen is a vendor take-back mortgage. The buyer requests the seller to “buy” the remainder of the needed finances in form of a loan to the buyer. This shortfall is the difference between the agreed price and the amount the bank is willing to finance to the buyer.
With more than 25 years as a home-buying lawyer in Toronto, Zinati has seen mortgage rates fluctuate from one extreme to the other. These rates are often the catalyst for driving the housing market into a decline.
Buyers that invested in pre-developed new condos four years ago may now discover the then-qualifying mortgage rates of 2% or 3% have doubled. The recent shift in the economy has seen many buyers not being able to afford the higher rates.
More recent sales agreements can see the same results as pre-qualifying for a mortgage in January at an interest rate of 3% has transformed to 6% on 30-year fixed mortgages. The added interest can drive the monthly mortgage payment to an unfeasible expense.
Lesser-known issue buyers may face as the housing market slows down is requiring legal support to settle disputes with builders. Whether the construction is for a house or a condo, there are several disputes that may need the services of a litigator.
According to Zinati, disputes may arise with claims for building extensions, defective work, losses for delays, unpaid fees, or breach of contract. Variations or extensions on a building contract are the most common litigation issues.
Monetary compensation of an additional few thousand dollars tacked onto the original bill is no longer feasible for builders due to the shortage of supplies and higher material costs. A builder may also have a previous commitment to another project that would be delayed if an extension is granted.
As a condo-buying lawyer in Toronto, Zinati has seen a lot of worst-case scenarios. He claims that condominium contracts can cause issues in a slowed-down housing market. With pre-construction condo contracts, some buyers will invest in several different arrangements with no intention to follow through on the closing contract. In the hopes of the market rising, buyers will attempt to sell the contracts to other buyers.
These “assignments” are now harder to flip before the closing as the high value of the property when bought pre-built, has now declined substantiality. The original buyers then have to follow through with the purchase contract at the time of closing.
Housing assignment contracts are legally binding. A buyer claiming it was their intention to be the primary resident would see the HST of 13% not applied to the profit of the assignment. This is no longer the case. According to Zinati, the HST-free transaction implementation was cancelled at the beginning of 2022.
The need for litigation is on the rise, says Zinati. Trouble within the housing market doesn’t just apply to the buyer and seller of a property. If the closing contract is not met, parties involved look to sue the real estate lawyer, real estate agency, mortgage brokers, and builders.
Zinati warns that litigation is not the best avenue for anyone to face in breach of contract or other property disputes. The long and complex process of litigation is necessary if the parties involved cannot make a suitable agreement. Just be warned: a litigation case is an expensive avenue to have to take.
Before signing any type of property agreement, it is imperative to seek a home-buying lawyer such as Zinati Kay – Real Estate lawyer. Our team has closed 25,000 contracts and we offer a fixed closing cost of $999 on all residential sales transactions. That includes most fees and disbursements, with the exception of land transfer fees and title insurance.
Contact us today to book a virtual or in-person consultation with one of our esteemed real estate lawyers in Toronto to learn more.
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