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Residential sales often involve a few weeks or months between when a firm offer is accepted, and the deal is “closed.” When a transaction is booked, buyers transfer a deposit that is held in escrow by the seller’s lawyers. At closing, buyers transfer the remaining amount to the sellers.

In uncertain times, much can change between a sale and its closing. When prices fall before closing, buyer’s remorse sets in, and purchasers may feel they have overpaid.

Even those who would like to follow through on the transaction may face challenges. Valuation metrics might change by the closing time such that declining prices could increase the loan-to-value (LTV) ratio, leading lenders to require that buyers put up additional funds.

In a highly unlikely scenario of severe liquidity constraints, financial markets might not extend credit, thus preventing sales from closing. If firm sales fail to close, even sellers will be at risk. Also, many buyers are simultaneously trying to sell their current residences; a failure to sell may limit their ability to buy.

Another concern is the trillions of dollars lost in investments since the onset of the pandemic. Some buyers had planned to cash in on investments to make their down payments. As portfolios bleed across the board, real estate transactions contingent on healthy investment returns could be in jeopardy.

So what kind of recourse do buyers have in this situation?

We consulted lawyers specializing in real estate transactions and contract law and the unanimous advice we received was that in at least Ontario, B.C. and Quebec, standard residential real estate transactions do not include force majeure provisions.