Humber/Ontario Real Estate Course 3 Exam Practice

What recourse does a buyer have if their purchased home incurs substantial damage due to fire shortly before closing?

1. Must take any proceeds from the seller's insurance.

2. Must rely on their own insurance for repairs.

3. May terminate the agreement given the extent of the damage.

4. Cannot complete the sale due to substantial damage.

5. Must still proceed with the transaction.

6. Can demand a price reduction.

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

When a buyer finds themselves in a situation where the home they are in the process of purchasing has sustained substantial fire damage shortly before the closing date, they typically have the option to terminate the purchase agreement. The logical basis for this is rooted in the principle of risk allocation in real estate transactions. Most purchase agreements include a clause that addresses the responsibilities and rights of both parties in the event of damage to the property before the closing. If the property is significantly impaired, the buyer has the reasonable option to withdraw from the agreement. This is particularly relevant if the damage affects the property's value or renders it uninhabitable, as it likely is no longer the property they agreed to acquire. The intent is to protect the buyer from being obligated to complete a transaction on a property that has suffered a loss, thereby maintaining their interests and financial well-being. In contrast, the other options provided might lead to obligations or outcomes that do not align with the standard practices in real estate transactions regarding substantial damage. For example, if the buyer were required to accept insurance proceeds or rely solely on their own insurance, it would effectively place them in a worse position than initially anticipated, which is not the standard procedure in such cases. Thus, the right to terminate the agreement given the