When homes’ appraised values drop quickly—as they have in the summer of 2022—anyone depending on the sale of their current home to buy their next one can find themselves in financial trouble.
Though it’s becoming unpopular as the market shifts, at the height of B.C.’s real estate market, it was common for buyers to purchase a new home prior to selling their current home, says Jesse Kleine, a real estate agent based in Vancouver. Based on his conversations with Ontario realtors, he says that practice appears more common in Ontario, where appraisals are done after an offer has been accepted.
Home buyers who bought first—just before home values began to fall in the spring—may be stuck selling their current house and still come up short on the funds necessary to close the deal, he explains. To complicate matters further, as buyers tried to outdo one another in a fiercely competitive real estate market, many signed deals without having properly secured financing or paid for an adequate home inspection.
Angela Calla, a B.C. mortgage broker, says this trend happens every couple of years as housing supplies run short and bids go high. “We saw some buyers forced to come up with extra money, get co-signers at the last minute, or have to take a more expensive lending option,” she says.
Buyers’ obligations after inking a deal
The moment Sebastian signed an agreement of purchase and sale for the Mississauga, she made an ironclad commitment on those terms, including its $995,000 price tag.
However, before a deal reaches this final phase of the buying process, there are additional steps intended to give buyers and sellers a way out—which Sebastian does not appear to have seized.
After a buyer has ideally been pre-approved by a lender, made an offer on a home and struck a deal, the sale enters a “subject period,” Calla says. During that time—a negotiated timeframe of usually between five and seven business days—the buyer submits all of their documentation to their mortgage provider to ensure the property value and criteria all line up with what they’re able to afford and what the bank will approve.