Busted

Michelle’s daughter rented a one-bedder with a shared little kitchen from a realtor named Grant. It was the summer of 2023 and the Kelowna real estate market was tanking. But that didn’t stop the agent from trying to turn a tenant into an owner.

“He couldn’t stop talking about how prices were just going up and how we should buy into Kelowna real estate,” she said this week. “He’d sold multiple investment condos along Sunset Drive when they were first built, including the one we were staying in. Today that same Airbnb condo is caught in the new rental rules.”

Indeed. Ten weeks ago BC’s can’t-leave-anything-alone government banned short-term rentals, unless the operator lives there. That’s made scores of condo apartments – once a lucrative source of income for local owners, many of them retirees – unviable. Either long-term tenants must be found (often resulting in negative cash flow and renters that can’t ever be forced out), or the units get dumped into a property market where prices are wilting.

Well, Michelle was one of many who this weekend wanted me to know about Jeffrey Mandl’s house.

On Ethel Street, three blocks from downtown, Mandl listed his place two years ago for $999,000, and lucked out by selling it the same day for more than asking. In fact, at $1.115 million, it was $116,000 over list. The buyer, Navdeep Singh Mahli, gave Jeff a $30,000 deposit and set a closing date of May 31.

A week later two more buyers – Wai Ming Fong and Xiao Li Liu – were added to the contract along with Mahli. And then things started going sideways.

Mahli arranged a mortgage with RBC, but with the real estate market starting to turn and the over-ask contract price in place, its appraisal came up light. The value of the place, it said, was “significantly lower” than the trio were buying it for. So they tried other lenders. Same story. No financing was extended.

Jeff gave them two extensions on the closing date – ultimately to the 18th of July – but on condition they cough up an extra $20,000 for the non-refundable deposit. The buyers did. They also asked that the purchase price be reduced. The owner refused, saying a deal is a deal.

On the 19th, no sale. The buyers choked. Jeff’s lawyer sent The Letter. You are in breach of the contract, it said. My client will take the steps necessary to mitigate his losses, for which you will be responsible.

Now the market was even worse. Jeff re-listed for fifty grand less than he’d originally asked – $949,000. It took several price chops and five months of selling before the place eventually changes hands – for $740,000. At that point, the suit against the buyers could move to trial and judgment.

Justice Hori agreed Jeff had made “reasonable efforts to re-sell the property” by chopping the price and also making repairs to the house (new roof and a/c unit) in order to attract a buyer in a declining price environment. The court ruled he was entitled to damages totalling (a) the difference between the contract price of $1.115 million and the sale price of $740,000, (b) the $29,000 bill incurred for repairing the property in order to sell it, plus (c) legal fees, costs, interest and carrying charges for the period of time between the original offer and the final sale – about six months.

The total: $413,000. Less the deposit, it means the three hapless purchasers are on the hook for an extra $363,000. Their argument in court that Jeff had misrepresented the property was dismissed. The seller acted reasonably. The buyers had not. Pay up.

If this story sounds vaguely familiar, there’s a reason.

A couple of weeks ago we brought you a similar tale of woe from outside Ottawa, where dozens of new-house buyers walked out on their deals with Matttamy Homes. After the market turned south, they refused to buy houses for more than market value. The builder sued their butts. One property originally sold for a million ended up being resold for $775,000. With costs, the defaulting buyer was told to pay $327,524 in damages.

The advice has not changed. It’s the same in BC as in Ontario. Everywhere.

Sane people will never, ever walk away from an agreement of purchase & sale. Rational buyers will always have an offer reviewed by their lawyer prior to submitting it, or include a clause in the agreement giving their legal counsel a defined period of time to have a look and approve.

Beyond that, do whatever you can to rescue a deal rather than litigate the fallout of failure. Find the money to close – from the mortgage dude, from the Bank of Mom, from your savings and retirement funds. It is almost always cheaper to close – and gain an asset – than to default and end up with nothing but a pillaged bank account and bitterness. If you buy a place and the appraisal comes up short, it’s a risk you embraced and must live with. Be ready for it. Ask the seller to take back financing for a year in the form of a VTB to cover the shortfall. It will be in everyone’s interest to work it out.

As we said here before, expect more stories like these. Inventory is going up. Mortgage rates are sticky. Unemployment is rising. The US is scary. Lenders are in retreat. And hapless, unhelpful politicians keep changing the rules.

Move forward in peril.

About the picture: “This is Twalek, she is from Koh Tao, Thailand (small island) and is my buddy when I visit there,” writes Tony. “She loves to follow me around anywhere I go – restaurants, beaches, hikes etc.  She has a full time owner there, so I call her my day-time dog/buddy. She originally walked out of the jungle alone and Tang-moe adopted her.  Twalek lives full-time at a Coworking place on Koh Tao.”

To be in touch, or to send a picture of your beast, email to ‘garth@garth.ca’.