Structuring Holdbacks During Negotiations

Date: November 6th, 2019
By: Ron Thibeault

Handling Closing Day Issues In Your Offer

Buyers are often surprised during our meetings to learn that a pre-possession walk-through is not a right. In fact, technically Buyers don’t have access to the property until the funds have already been released on the day of closing.

In almost all cases, Buyers expect their newly purchased home to be perfect. It is an emotional time and the excitement is palpable. They walk into a dirty home and all of that excitement disappears.

Can You Holdback Money?

The first inclination of Buyers is to demand that money be held back from the Seller to cover the costs of the cleanup. Unfortunately, the reality of a real estate transaction is that Buyers are not entitled to holdback money from the closing funds for minor breaches of contract.

The standard form contract in use in Alberta does not give Buyers an automatic right to withhold funds unless that right has been agreed to in the purchase contract.

What constitutes a minor breach? That is not easy to quantify but examples of this would be where the home has not been cleaned as required, an appliance is not working or there is some drywall damage.

Can You Minimize Risk?

This is simply a question of negotiation at the time of your Offer. Will the Seller accept a clause in the contract giving the Buyer a right to holdback funds if the property is not up to standard at closing? It is unlikely, but certainly something worth attempting to negotiate.

If, for example, a term of your Offer obligates the Seller to get carpets professionally cleaned, a clause should also give you the right to holdback a preset amount at closing pending the production of receipts showing the work having been done.

You should also ensure that a term is added to your original offer giving you the right to a walk-through either the night before or morning of closing.

Simply put, if there is work to be completed by the Seller before closing, you and your Agent must ensure that the Offer has terms added that protect you in the event those matters aren’t resolved as required. The wording of these holdbacks is vital. Your Realtor is not a lawyer so if there are any questions either contact us or have your agent contact us to review what should be included in the holdback clause.