'Honour the contract': Tough advice from real estate experts

You bought your new dream home and you just had to sell the home you've been paying off and fixing up for years. Then the market took a turn.

"I’ve never seen such a drastic drop,” said London, Ont. Century 21 Realtor Shahin Tabeshfard, “It honestly feels, and a lot of Realtors will tell you the same, if feels as if somebody turned the switch off."

The flipping of that switch has put many people in a desperate economic situation, owning two homes and seeing the value of both drop dramatically.

While a lot attention has been paid to things like higher interest rates and other inflationary pressures, what's really putting the squeeze on people in the midst of a move is appraisals.

The bank sees the value of your home very differently than the market saw the value of your home even just a few months ago.

Tabeshfard said it’s a challenging situation when the appraisal comes in below the purchase price, say, by about $150,000, because the bank will only finance the appraised value leaving the purchaser on the hook for the balance.

"What they're going to have to do is come up with that amount in cash. The back-up property, which they will try and sell, will also sell for about $150,000 less than they thought they were going to get, now they're facing a $300,000 differential that some families just can't make up," he added.

For many, thoughts turn to simply breaking the purchase contract.

Matthew Wilson is a real estate lawyer with Siskinds Law in London. He has a piece of advice for anyone considering going down that path. “Don’t do it... Because if it's a firm deal and you’re the buyer you have an obligation to get the deal done. If you don't you risk losing your deposit,” he said.

According to Wilson, things could get worse from there. “If the seller sells again and they sell for a lot less money, the [initial] buyer is going to be on the hook for that money. The seller is going to sue them. It's better to be in control if you’re the buyer. Try and get the deal done."

This is new territory for many in the London real estate market, which has been known for steady, but unspectacular growth.

The London region has had very few spikes and falls but Wilson said these events have been seen repeatedly in markets like Toronto and Vancouver. He said a good first step is to get sound professional advice, "Talk to your lawyer, make sure you keep your real estate agent involved.”

He also said, “Talk to a mortgage broker, maybe they have some creative ways to find other financing. You might not be able to go to a schedule one bank but there are private lenders, there are mortgage investment corporations. There are other options out there, make sure you look at all the options before you try to walk away because, maybe, a more expensive option in the short term will save you a lot of money in the long term.

Wilson told CTV News there will be light at the end of the tunnel and the market will settle. He said weathering the storm almost always proves to be the best course.