By Jeff Stern

My clients were selling their house and had received an offer. Right away, I knew something was fishy.

The offer itself was fine. It had the typical conditions that most offers have, including the condition that they would buy if financing went through. What was unusual was how quiet they and their agent went in the days that followed. Normally, the buyer and their agent are eager to satisfy offer conditions as soon as possible.



We didn’t hear from them for days, so I phoned the agent. “How’s the financing coming?”

“They’re working on it,” the agent said.

So, we waited some more, but after all these decades in the industry, my spidey senses were tingling…telling me something wasn’t right.

Finally, the night before the offer was set to expire, the agent called and asked for an extension on the financing. At that point, I required more information. Without that, I wasn’t going to subject my clients to this risk. That’s when I found out the whole story.

The buyers were new to Canada, having immigrated to Winnipeg to start their new life studying in university. Their family had offered them a sizable amount of money to start their new life here and the couple had planned to use it as a down payment on their house.

That night, after their offer was accepted, they called overseas and excitedly announced to their family, “Guess what! We bought a house!”

The family was not happy… “What? We’re not giving you the money for that! You were supposed to use it to get established in your new country, not buy a house.”

Suddenly their down payment was gone and they were scrambling to secure additional financing for their house.

My clients in good faith granted the extension for three days, but the same thing happened again. The night before the offer was set to expire, we got another story of how the financing wasn’t working out. This time they were changing lenders and wanted another extension.

The worst part was that they were not telling their agent or my clients any of this and they intended to tie up the for-sale house for another few days.

Here’s the big problem with all of this – while an offer is pending on a house, it affects the sellers, losing valuable exposure of their home for a financially qualified buyer. These buyers, as was discovered, were not qualified and somehow their agent was in the dark on it – why, I can only surmise.

When I represent my clients as buyers, I always obtain a pre-approval letter from their lender before they set out to see, let alone make an offer, on a home. The letter is critical as it outlines the amount of mortgage they can obtain, the amount of down payment and closing cost monies required, the terms and any conditions of the approval. That way we know up-front any potential hurdles to clear ahead of time.

If the offer goes through, it’s fine. But what if the offer falls through?  The seller loses.

I suspected the couple was either knowingly or perhaps unknowingly acting in bad faith and the sellers’ lawyer suspected possible fraud due to misrepresentation.  Had they been up-front about their challenges, my sellers could have rejected the offer and moved on to others or their agent could provide guidance as to how to put it together for them. That is what we as real estate professionals do! They should have put their ducks in a row before offering, not making their problem my sellers’ problem. It’s just bad faith.

What happened next was that the seller refused to release the deposit, so my office held it in our trust account for two years sitting on our books (an accounting nightmare) while their respective lawyers could deal with it.

This is the cost of not having ducks in a row. The buyers were at risk of losing thousands of dollars and perhaps being sued for even more.

If you’re the agent, clear communication and understanding of your client’s situation is on you. You have duties of honesty and fairness to everyone involved.

If you’re the person buying (or selling) be honest. Be transparent.  This is legally binding stuff, people – there cannot be any misrepresentation.

If you’re relying on some external source to fund your down payment (even if that external source is your own mutual fund or RRSP), don’t rely on it until it’s in hand.

Are all your client’s ducks in a row? Download my Preapproval Checklist to find out.

Jeff Stern, a 27-year real estate veteran with Re/Max Performance Realty in Winnipeg, received the 2017 CMHC/MREA Distinguished Realtor Award. He is an instructor for the Provincial Real Estate Licensing program, a member of the Education Committee and sits on the Professional Standards Investigation and Hearing Committee at MREA. He gives back to the community as chair of the MREA Shelter Foundation and writes stimulating and enlightening articles on his blog. The opinions expressed are those of Jeff Stern and not the Manitoba Real Estate Association.

30 COMMENTS

  1. Sounds like a mess all around. Both parties and sales representatives have a clear part to play in the process. If the deal falls apart due to lack of financing. which can happen and why we put the clause in, then move forward. Release the buyers money so they can try to find something they can afford. Allow the sellers to re-market the property and find a qualified buyer. Waiting for 2 years to release the funds and just stress everyone out is nuts. That is where professionalism comes in, tell buyers – don’t fall in love with the home until the keys are in your hand. Sellers don’t spend the money until the deal closes. Do the job we are paid for to make that happen. Had the clause been waived and deal went firm…then the deposit can be forfeit. Legally binding contract has consequences if you do not meet your expectations. Clearly the sellers were not acting in good faith. How could they have so much angst? Yes, the deal fell apart but it never went firm so they did not have a deal…when you fall down you get back up…The buyers ran into bad circumstances and could not afford that dream home.. should have had better advice from their representative..but to punish them for it was very petty. Lawyers advice was good for his wallet, and guess he got half the deposit for the sellers..hope they sleep at night.

  2. I find it very interesting how comments turn from the behaviour of a party to a contract to the agent. It is possible that differences provincially are at play here but contract law at least in Manitoba supported the outcome. The understanding of each parties responsibilities is equally borne by the parties who sign but the parties representative agent who has a duty to ensure their client understands what they sign. Beyond that, the ultimate interpretation of the law can only be under the guidance of lawyers and if it goes that far, the courts. When a contract has conditional undertakings benefitting a particular party and the said contract has terms that state that the party benefitting must make reasonable efforts and such party does not perform that on their part that is the crux of this situation. When the buyers agent is not understanding of their clients financial circumstances or perhaps forthcoming especially when asked specifically of the situation at hand yet permits the buyers proceed to sign an offer and request condition extensions knowing full well the money to close is not there yet asks and the seller who not knowing this grants an extension this is the red flag the sellers lawyer considers in instructing not to release the deposit. Parties to a contract unable to fulfil their obligations yet proceed is the issue at hand. Likely the Good Faith Doctrine applied to this case.

    • Yes buyer agent has responsibility as well. We know that many times a pre-approval letter means nothing after all the documents are submitted on a live deal and we are not mortgage agents rather we are Realtors. If the buyer didn’t get approved for whatever reason during the conditional period then all funds in trust should be given back irregardless of extensions provided. If they waived and then backed out, sure amount can be kept but they didn’t. What is the point of conditions if the buyer’s deposit is going to be held for 2 years and half of it taken away? It would create chaos and there would be no point in conditions.

      This is bad precedence and makes the buying process a negative experience if a seller can keep your clients deposit for 2 years and then keep half. This article should be titled “Beware of bully sellers how to properly guide your buyers so they don’t lose half their deposit”. lol

  3. Real estate in Manitoba is in the “dark ages” as written and explained in the article, the billions of $$$ of sold residential real estate transactions in BC would not had a similar outcome, way different and a better outcome for all parties like the Seller and Buyer, giive me a BREAK. The provinical government and all stake holders in the Manitoba should get their ” heads out of the Sandbox” REALLY! This is 2018 and not 1918.

  4. This doesn’t make sense, I am confused…?

    Many times things don’t work out, I’ve seen it many times and our job is to ensure that the process smooth, informative, positive, and in our clients best inter3in. If a deal doesn’t work out, you release and move on. Why would any realtor accept his client take the proeprty off the market, wait for 2 years, pay legal bills, for what? What’s the point of conditional period if you can’t back out? They asked for extension, they didn’t get approved, isn’t this normal? Its normal here in my market. Iam not sure why the lawyer was allowed to do this, this deposit is not for the seller and is held in trust if things go sideways agree conditional period. There was a contract, it had conditions, condtionsc were extended, seller accepted irregardless of intention, so I don’t think any court in Canada would side with the vendirs and the buyers should get the full amount with interest and legal costs.

    Sounds to me like your sellers jipped you from commisicom and hustled new immigrants out of their deposit. I hope it wasn’t substantial.

    • I agree with Ali. Shame on the sellers for holding it back and double shame on the sellers agent for blaming everything on the buyers agent and the buyers! Be a professional and ask the buyers agent when you get an offer if the buyers agent has seen an approval letter! And when they as for an extension, don’t offer it. Simple as that. Have them come back when they are ready to buy. Get an offer elsewhere. Plus why are you tying up the property and not still showing it while its conditionally sold? Honestly, the buyers probably had no idea of the rules. Both realtors sound very unprofessional and inexperienced, the Brokerage who kept the deposit as well. This whole scenario is why ppl hate realtors.

  5. The condition of financing clearly lets the buyer out of the contract inspite of everybody not obeying the contract, especially the lawyer who advised his seller to not release the deposit. Shameful conduct against a new immigrant that had no chance of getting approved for financing with or without a down payment. Both agents and lawyer mishandled the entire process. Take that from an agent with 49 years experience

  6. Just curious – what was the amount of the deposit and were any court costs incurred? Litigation can be expensive. I tend to agree with some others here – a condition is just that, a condition, and if the buyers can’t waive or fulfill it, a Mutual Release is signed by both parties and the buyers get their deposit back. The seller should be made aware of this and warned that this does happen.
    During the condition period, while keeping in touch with the selling agent is certainly the professional and courteous way to go, the buyers’ confidentiality must be kept in mind when discussing things with the selling agent. Having said that, I would rather have little information from the buyer agent than false assurances – which sounds like the case here. I would also hazard a guess, that since the sellers granted an extension, there weren’t any other buyers waiting in the wings, so it sounds like they really didn’t have anything to lose by granting the buyer’s extra time.

    • Yeah, how was this allowed? I would have instructed my brokerage to release, they had conditional period and this was within that period. This was probably settled, if it went to court 100% damages and full amount would go to buyer. Poor buyers probably got bullied and I’d love to know the amount, if it was 5k okay no biggie but if it was substantial then I would argue bad faith in the part of the sellers.

      They couldn’t relist and sell?

  7. The incident seems to be mishandled from all sides. In addition to valuable comments from realtors above, I would like to add that in comparable situations the realtors, brokerages and parties normally sign a mutual release. If the selling experience caused the seller so much angst that he wouldn’t sell the property until 2 years later, shows that the seller did not have any motivation or reason to sell, Jeff, or some additional guidance could have solved the situation in a speedier, more amicable and more convenient way.

    • No mishandling from the sellers end and the fact they waited 2 years to re-enter the marketplace has no bearing on the theme of the story. If I had mishandled my end my sellers would not have retained any funds and I would not have been their agent again.

      • Just because they used you again doesn’t mean it wasn’t mishandled, I agree with many here. You should have given your clients better information about the uphill losing battle and explained the concpet of a conditional period. We are the experts, they relay on us.
        I also don’t know why a lawyer is involved at conditional period nor how he would recommend that the deposit be held during a conditional period? Any lawyer will tell you as per contract law the buyer didn’t do anything in bad faith, they asked for extension, seller agreed, it didn’t work out, it ends there.

  8. You say you knew something was fishy right away & that you obtain a pre-approval letter when representing your buyer clients. With your 27 years in the industry also mentioned, there is no description of you asking the selling agent anything about their clients whatsoever; only just accepting the offer & feeling something was fishy. You simply did not do your job here Jeff. At the very minimum, part of the offer process when you are guiding your clients is a conversation with the other agent to determine how well he knew his clients, what their financial situation was (ie they were getting money from a qualified lender or from family (where a red flag automatically goes up) and this would be before you accepted their offer.

    • Without knowing all the finer details making such a statement that “I was not doing my job” is fairly judgemental Nicky. The article offers a great take-away that as agents for the buyer we must verify the terms of the pre-approval and demand of the lender they do all the preliminary due diligence and when acting for a seller, if we don’t have history with the buyer agent, make Inquiries of their clients financial status. Beyond that, we must remember that we must keep on top of our clients outstanding conditions and guide them through their processes all while ensuring they (and we) deal in good faith which clearly was not the case in this instance since the sellers lawyer suggested retention of (and the buyers subsequent willingness) a portion of the deposit.

      • You put this out there Jeff. Your first comment is ‘right away I knew something was fishy’ C’mon who are you kidding? You want to call me judgemental because I pointed out what you could have and should have been done better? With all of the other comments that point out other ways in which this was not handled correctly, your only answer is that because YOU retained these people as clients again that there was no mishandling. You did a lot of things wrong here Jeff and I repeat, you did not do your job correctly. Great that you’ve had multiple awards in the real estate industry. Not so great that you don’t recognize that in this business when you make a mistake, part of your professionalism is owning up to it. This is not about your clients getting 50% of a deposit that they weren’t entitled to & you retaining them as clients.

  9. Buyers agent failed to due his due diligence to begin with, either from lack of knowledge, experience or the will to see the job through correctly. This scenario happened to me once years ago, and sadly when a 30 year agent who was the buyers agent, does not do his due diligence it makes us all look bad. We are supposed to trust the Licensee on the other side of the CP&S is doing all they can so we can rely on the offer to some degree. It think in my case it was that the Agent was too busy or had to “put up numbers” because that is the culture of some offices. And then say the ones that don’t go through is the cost of being successful, win some, lose a few attitude. However the impact that it has is that the Sellers get mad with everyone. I always check with the financial institution or mortgage broker with my buyers before writing an offer. That has help reduce the failure rate.

  10. The Seller could continue to sell their house.
    Looks and sounds like they want to trap this deposit. Realtors know how to prevent such situations however ultimately it is Seller’s decision.”Poor” new immigrants…I feel sorry for them.Brokerage is victim too…who needs this mess.

    • I agree 100% and actually makes the seller agent look bad for not coaching them to avoid wasting 2 years to settle on 50% and wasting time. If this went to court the selerss would lose for sure because it’s basic contract law.

    • Exactly my thought! They had a condition of financing and they tried to get financing so….how does the seller have any grounds to claim bad faith. If you were so worried about it why not place a time clause with a short fuse with the extensions granted on financing. All my sellers know that even when an offer is accepted, if it has conditions, we continue to market and show the home and capture any other opportunities.

  11. Of course a pre-approval has merit, not sure as much authors’ description of it suggests. Pre approval, even the formal commitment letter, has so many conditions that could easily not be met and compromise the funding assurance taken from them. Spidey sense aside, we are not trained as professional financial or accounting or tax or immigration experts. A necessary consequence is reliance on such professionals. Maybe there ought to be in an agreement of purchase and sale a term that requires notification of the details of a buyer’s financing arrangements to the Seller or Seller’s representative or professional (lawyer).

  12. I believe that deposit money is held in trust, and truthfully it belongs to neither party. In this instance…buyers did not waive conditions so the monies should have been returned to the buyers forthwith. The Sellers representative has some responsibility here to advise their client to not extend …especially when his “spidey sense” is tingling….yes buyers should be screened…point taken… Were the sellers made aware that the deposit is held in trust…and not theirs?…

    • The sellers were aware of my concerns every step of the way and still wished to extend and since they are the party to the contract I must follow their lawful instructions. Their lawyer was advised of the issues once it became apparent the transaction was failing and agreed with me the the buyers deposit should be retained in trust and the sellers again instructed not to release the deposit.

  13. I am surprised the Seller could have the deposit held and still move forward and sell their home to someone else, I understand they want to punish the buyer, but it would mean they had not released the buyer and would impede future negotiations with a qualified buyer being able to complete a purchase.

    • It was not so much to punish the buyer as the seller only revisited the withheld deposit 2 years later when they decided again to sell after this experience caused them much angst, so made the offer of retaining 50% which the buyer agreed to. During that 2 year period was silence by the buyer and the inconvenience of my broker in maintaining the funds in trust.

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