Certain precautions are required for a cash purchase
Sometimes, the buyer of an immovable does not take out a mortgage loan, preferring to pay cash for his purchase. Whether you are a buyer or seller, your real estate broker will take certain measures to ensure a smooth transaction and protect the parties.
You are the seller? The broker should advise you to ask for a reasonable deposit and to draft a counter-proposal to this effect if the deposit received is insufficient.
You are the buyer? The broker should advise you to make a reasonable deposit when presenting a promise to purchase, to assure the seller of your good faith. This will demonstrate to the seller that you are really in earnest because a promise to purchase in cash without a reasonable deposit exposes the seller to serious risks.
Documenting the availability of funds
When a transaction is financed by a mortgage loan, the availability of funds is confirmed by the financial institution. But in a cash transaction, a financial institution will not – or at least not easily – provide a bank guarantee or confirmation. You are therefore advised to properly document the availability of funds.
The Annex F - Financing form: Mandatory for a cash purchase.
Clause F2.1 of the mandatory form Annex F - Financing “Proof of availability of funds or equity in case of cash purchase” must be used during a cash purchase. This clause contains a condition requiring the buyer to provide proof of availability of funds or equity to the seller to ensure that the funds are available in Québec (not abroad). This includes:
- A bank statement;
- A written declaration from the person who made a promise to purchase on the buyer’s current property, confirming the acceptance of the offer, the purchase price and the fulfilment of conditions.
The broker is responsible for completing this clause with his client and determining whether the evidence submitted is satisfactory and, at the same time, protects his client's interests. If necessary, he may consult his agency executive officer or a legal expert.
Funds conditional upon the sale of another immovable
If the money used to purchase a property must come from the sale of an immovable that is not yet sold, the seller should, with the help of his broker, ask the buyer to obtain a mortgage loan. When fulfilling clause R 2.1 of the Annex R form entitled “Sale of the buyer’s immovable”, the buyer must provide proof of the mortgage lender's unconditional undertaking.
If the sum used to purchase a property comes from an immovable that is the subject of an already accepted promise to purchase, the buyer will have to check the second box of clause F2.1 with the help of his broker. According to this clause, the buyer must show the seller that he accepted a promise to purchase on his immovable. This can be through a written declaration from the buyer, in which he confirms that his promise to purchase was accepted and that the purchase price and all conditions are fulfilled, except the signing of the deed of sale at the notary. This written declaration shall be forwarded to the original seller.
The broker will be of great help in managing receipt or transmission of these documents, the timelines provided or to be provided in clauses, and in performing the cancellation mechanisms of the promise to purchase, where appropriate.
Clause F2.2 — “Penalty” enables the seller to obtain the amount of damages determined in advance, without having to prove the prejudice suffered. Note that:
• This clause must not be used systematically;
• It can be used for very special cases where it is feared that in case of default by the buyer, it will be very difficult for the seller to recover any amount whatsoever as damages;
• If the buyer withdrew and there was a dispute over his liability, neither the broker nor the agency may decide who is entitled to the sum, and both parties would then be required to reach an agreement or appear before a court.
Many events can jeopardize a real estate transaction between the acceptance of a promise to purchase and the signing of the deed of sale. This happens when a transaction depends on the outcome of other transactions and, even more so, when one of these transactions is a cash purchase. To prevent a transaction from being jeopardized, the real estate broker must strongly recommend that his clients sign the deed of sale as quickly as possible, in particular to ensure that the seller, if he needs the money, receives it before making any other commitments.
Money laundering reporting form
If you believe you have witnessed an attempt of money laundering or recycling of proceeds of crime involving a real estate broker or agency, the OACIQ provides you with a form so you can report it to us.