By JULIEN GIGNAC Staff Reporter
Sun., April 15, 2018
In a case a judge called a warning to prospective buyers in the GTA’s erratic housing market, a couple caught up in a bidding war will have to pay $470,000 after reneging on a multimillion-dollar deal to buy a Stouffville-area house.
David Lea and Yixing Hu submitted an offer of $2.25 million in April 2017 after being told there were multiple competing offers for the property, originally listed at $2 million, according to court documents. The bid was accepted, but not long after the market cooled and the Newmarket couple had second thoughts.
Feeling they’d overpaid for the property and having trouble making the down payment, the couple pulled their offer. In the summer of 2017, the market value of the home had dropped to about $1.8 million. The homeowners sued, and in a court decision this month, the judge ruled Lea and Hu had to pay the difference.
“When the residential real estate market is a rising market, most people — perhaps with the exception of first-time buyers, are happy homeowners and investors,” Ontario Superior Court Justice Mark Edwards said in the decision.
“When the market turns and drops, it is not for the faint of heart. The facts of this case tragically demonstrate how one family, presumably desperate for their dream home, became embroiled in a bidding war and overextended their ability to finance the purchase price of that dream home.”
Lea told the Star he and his wife hadn’t wanted to be involved in a bidding war. The couple is trying to sell their current house, and Lea said they may rent once they do.
“We’re probably going to have to rent somewhere. We’re trying to figure that out. I’m going to see what I can afford every month, and pack up the kids’ stuff,” Lea said, who is a father of four. “I have no choice. It’s the worst of the worst because you take the hit on their property and get these big damages, but at the same time (the value of) my house has dropped. I can barely sell it for $1 million.”
According to court documents, homeowners Douglas and Sheila Gamoff listed the Stouffville property for $2 million on March 29, 2017.
On April 1, Lea and Hu submitted an offer of $2.05 million. They were advised by a real estate agent that this figure was too low for an edge over other offers. They came back with an upgraded offer of $2.25 million, which the Gamoffs accepted.
Hu and Lea then had to pay two deposits, an initial payment of $30,000, and a second one of $90,000 to be paid on April 6, which was later amended to April 10. While the couple paid the first instalment, they withdrew from the second, citing financial complications, according to the court decision.
“Their concern,” which is tied to the belief they paid too much for the property, the decisions says,“was undoubtedly fuelled by the fact that they had learned that, a combination of their approved mortgage financing and assessed value of their home, would not permit them to obtain the necessary financing to close the (Agreement of Purchase and Sale).”
After Hu and Lea rescinded their offer, the Gamoffs relisted their home on May 1 for $2.25 million. It was around this time the market began to feel the effects of new provincial rules meant to cool the market. The price was lowered to $1.798 million in July.
On July 31, the Gamoffs received an offer of $1.7 million, the decision says, and the transaction closed that fall for $1.77 million.
The Gamoffs were not available for comment, but Doug Gamoff’s lawyer, Kevin MacDonald, said the defendants placed an offer without conditions that was accepted, then abandoned the transaction too late.
“I think the takeaway from this case is there’s a general misconception, I believe in a matter like this, that you forfeit your deposit and that’s the end of the day, and that certainly is not the case and this is an example of what can happen when you withdraw in the circumstances they did,” he said.
Lea said he could have paid the second deposit, but once he and his wife assessed the appraisal and their mortgage, they knew they had to pull out.
“The whole deal was going messy. We couldn’t get the point across that we (could not) close on this house. They weren’t taking us seriously,” he said.
“We didn’t know the market was going to crash like it did. We were not investors. We just wanted to buy our dream house.”
John Pasalis, president of Realosophy brokerage, said the $470,000 figure is among “extreme examples” of the drop in home values during that period.
A recent Realosophy report found the difference in sale price of 866 lowrise GTA homes re-listed after buyers backed out between March and July 2017 was $140,200 less on average.
“People get caught up in this emotional, ‘You have to buy now, or you’re never going to be able to afford it’ (attitude) and these are the side-effects of that type of thinking, unfortunately,” Pasalis said.
There is at least one other recent case that is markedly similar, though it did not occur during a time of equal market pressures.
In a decision released in March, also by the Ontario Superior Court, an interested homebuyer was ordered to pay about $144,000 in damages when she pulled out of a deal as she didn’t have the funds required to complete the purchase, it says.
In the Stouffville case, Justice Edwards said in the decision he has “every sympathy” for Hu and Lea, noting they are probably not alone in their predicament.
“With the changes in the real estate marketplace in the Greater Toronto Area, I have every expectation that there are many more cases where purchasers find that they have overextended themselves in a declining market.”
Lea said the Stouffville property would have been the last home he and his wife bought — a place to retire in.
“I’m trying to be as positive as possible. This stuff can just destroy your health,” he said.
Original article located here: https://www.thestar.com/news/gta/2018/04/11/couple-ordered-to-pay-470000-after-reneging-on-stouffville-home-deal.html