When to Walk Away From a Home Purchase

You’ve saved your down payment, received a mortgage pre-approval through your mortgage broker, found a realtor, viewed several homes and found “the one.” Now you’re ready to make your offer to purchase, and after a few more steps, you’re a homeowner, right?

Not so fast. Buying a home is a complicated process with many steps involved. There are several points along the way where you may feel that buying this home was a mistake and you should walk away from the purchase.

But how can you know if that feeling in the pit of your stomach is real or just nerves?

Don’t worry. We’ve got you covered. Here are five red flags that can arise after you make an offer on a home. If you encounter any of these in your journey, trust your gut and consider walking away from your home purchase.

1. A troubled status certificate

Let’s start with condos. If you’re purchasing a condo, you’re not just buying your individual unit. You’re also buying part ownership in the building, and that means taking partial responsibility for its repairs and governance. You’ll pay condo fees (sometimes called maintenance fees or strata fees) to the condo corporation. Your condo fees fund the building’s repair, maintenance, and reserve fund.

Once you’ve made your offer to purchase, you’ll have an opportunity to review the condo’s status certificate. The status certificate is a financial snapshot of the condo corporation. It includes information on the reserve fund, special assessments (which are one-time fees for large repairs), outstanding lawsuits, and even rules and by-laws.

Some red flags that could show up during your review of the status certificate are:

• A recent special assessment for repairs that’ll cost thousands of dollars;
• An underfunded reserve fund, which could indicate a future increase in condo fees; and
• The by-laws are incompatible with your lifestyle (for example, the condo corporation doesn’t allow pets).

If you submit your offer to purchase with the condition of a satisfactory review of the status certificate and you find something in the document that makes you uncomfortable, you could walk away from your offer without losing your deposit (your deposit is usually 1% of the purchase price).

If you don’t have this condition, however, you may lose your deposit, which may be worthwhile if you discover the condo corporation isn’t on solid financial footing.

2. You’re in a bidding war

If you find yourself in a bidding war over a home, you may feel compelled to offer more than you can afford. Feeling pressure to go above your maximum budget is typical, especially if you’ve been home hunting for a long time or if the home has a particular feature you want.

If you find yourself pushed closer to your maximum budget than you’re comfortable with, consider bowing out of the bidding war. While it may be disappointing, it’s better than spending too much and ending up house poor.

3. The home inspection reveals problems

If your offer on the home is accepted, congratulations! But you’re not out of the woods yet.

If you’re purchasing an older home, you may want to consider getting a home inspection. A home inspection will assess the condition of the home, and it may reveal potential problems. While most homes will have small issues, pay attention to major red flags that could result in thousands of dollars in repairs. These red flags include:

• Knob and tube wiring
• Asbestos
• Cast iron plumbing
• A crumbling foundation
• Evidence of ceiling leaks
• A sagging roof

If your home inspection reveals any of these issues, you have several options.

First, you could go back to the seller and negotiate a lower selling price to offset the cost of repairs. Second, you could terminate the sale. If your offer was conditional on an inspection, you’d get your deposit back. If you didn’t include this condition in your offer, you might lose your deposit.

4. If the home is appraised for less than the sale price

While most Canadians think their mortgage approval depends on their income, down payment, and credit rating, this is only partially correct. Your mortgage approval is also dependent on the property itself. Your lender will want to verify that the property they’re lending you money for is worth what you paid for it. To do that, the lender will have the home appraised.

In most cases, the home appraisal will reveal that the home is worth the purchase price. But sometimes the appraisal will come back at a lower value than the purchase price.

In this case, your lender will not loan you more than the home is worth so you’ll need to pay the difference. You have a few options in this situation. First, you can contest the appraisal. You could also pay the difference between the purchase price and the appraised value, or you could terminate the sale. If you walk away, you may lose your deposit.

5. Your personal circumstances change

Finally, life-changing events like job loss, illness or a death in your immediate family are all good reasons to walk away from a home purchase. It may sting to give up on buying a home. But if your life is in upheaval, it’s best not to make any large financial decisions.