Humber/Ontario Real Estate Course 4 Exam Practice

If a home incurs substantial damage due to a fire shortly before closing but repairs are possible, what option is available to the buyer according to the agreement of purchase and sale?

1. Must take any proceeds from the seller's insurance coverage and complete the sale.

2. Must rely on his own insurance coverage to repair any damages incurred between offer acceptance and closing.

3. May terminate the agreement given the substantial nature of the damage.

4. Cannot close the sale as a substantially damaged house was not what was agreed to in the agreement.

5. May negotiate for a price reduction to cover repair costs.

6. Is obligated to proceed with the purchase without any remedies.

The correct answer is: May terminate the agreement given the substantial nature of the damage.

The buyer has the option to terminate the agreement due to the substantial nature of the damage. In real estate transactions, agreements of purchase and sale typically include provisions that allow for termination if the property sustains significant damage before closing. Since substantial damage from a fire can materially affect the property's value and intended use, the buyer is entitled to reconsider their commitment under such circumstances. This capability to terminate reflects principles of fairness and protects buyers from being forced into a situation where they have to accept a property that has lost its original value or condition due to a damaging event. It acknowledges the buyer's interest in obtaining a home that meets the standards and specifications outlined in the agreement. The other options either place undue burden on the buyer or incorrectly interpret the rights provided within typical purchase agreements. For instance, requiring the buyer to rely solely on their insurance or forcing a completion of the sale without recourse undermines the buyer's interests following significant property damage.