Buying a House at an Auction

BUYING A HOUSE AT AN AUCTION

IN ONTARIO, CANADA

Property auctions in Ontario are starting to become more regular. An auction does not necessarily mean that the seller is forced to sell their property and it not a foreclosure or a distressed sale.

An auction is now simply a new way to market and sell a property in Ontario significantly reduced cost to the seller. Only owners, real estate brokers, agents, and auctioneers can legally sell a property in Ontario.

When considering the traditional method of selling real estate in Ontario, buyers interested in purchasing at an auction must be ready to front-load many of their investigations before the auction occurs. This of course is very different to the traditional way of purchasing real estate, where your agent prepares an agreement of purchase and sale (“APS”) and you have a window of time to conduct your due diligence before your offer becomes firm.

Using a Real Estate Agent:

The normal procedure most often involves retaining a real estate agent and entering into an agreement of purchase and sale which is most often a standard form offered by the Ontario Real Estate Board.

When you submit your offer to purchase (and your deposit), and the seller agrees to sell the property to you, you have a number of weeks to complete your review of the property, at which time the APS becomes an unconditional offer. When the APS becomes unconditional, and this usually requires that you formally accept or waive the conditions in your APS (ie: selling your current home; a home inspection; securing bank financing, etc.) you are committed to close the transaction or you lose your deposit. Of course, if you are not satisfied with your home inspection; or you can’t sell your house; or obtain bank financing, you can walk away and have your deposit returned.

The Auction Process:

The auction process is very different. There is no time period available to you, after you agree to purchase the property, where you will be able conduct minor due diligence on the property or arrange your financial affairs. You are expected to arrive at the auction ready to buy the property. This means that if you want to conduct a home inspection; secure financing; sell your home or in the case of a country property, test water quality/flow rates; septic systems, you MUST complete due diligence prior to the auction.

When you agree to purchase a property at an auction; you will be asked to sign an APS and submit your certified cheque representing the deposit. That deposit will be put into a lawyer’s trust account for a short period (probably 10 days) and your lawyer will be allowed to search and confirm that the seller has good title to the property. Once that key issue has been confirmed the offer will be firm and released to the seller. If you do not close for any reason, your deposit is forfeited.

In summary, the main difference in the above processes is that in a typical real estate transaction, you have a few weeks to conduct your due diligence and arrange your affairs knowing that once you waive your conditions, your offer becomes firm. In the auction process, the only item that you can investigate after you have purchased the property is title. If title is in the hands of the seller, you have to close or you lose your deposit.