Following my initial blog entry in October discussing the basics as to why it typically takes a few business days following possession date for a seller to receive their sale proceeds, I thought at this point it would be prudent to now calm all of those current and prospective sellers who read my post and felt that this is a raw deal for them (hopefully my last post did not incite seller riots); before I can finish explaining the entire selling process to my seller clients, they have been known to quip: “If the buyer gets to move in on the possession date without me having my sale money, what do I get out of this?” The answer: Interest.
Clause 4.1 of the Saskatchewan Real Estate Commission’s standard form “Residential Contract of Purchase and Sale” used by Saskatoon’s Realtors states the following:
The Buyer agrees to pay to the Seller interest at the Bank of Canada Overnight Rate Target at the Completion Date plus 4% per annum, on any portion of the Purchase Price, less mortgages or other encumbrances assumed, not received by the Seller, his/her solicitors or his/her Brokerage as at the Completion Day, until monies are received by the Seller or his/her solicitor….
Thus, this clause creates a contractual obligation on the part of the buyer to pay interest to the seller. As it provides, part of the interest rate is static (four percent) while part of the interest rate is dynamic, fluctuating in accordance with the bank of Canada Overnight interest rate (which is currently one percent). If anyone is struggling to come up with what the total current interest rate is, you may borrow my calculator once I am done double checking my arithmetic.
As a matter of practicality, in order to ensure that the buyer will actually pay the interest to the seller, most lawyers acting for a buyer will collect about ten days of interest up front from them (along with the rest of their down payment and closing costs) on the outstanding mortgage amount. Following registration at Land Titles, the buyer’s lawyer will send the mortgage proceeds to the seller’s lawyer along with the extra interest that has accrued thereon. Any residual interest money that was collected by the buyer’s lawyer and not paid to the seller will be reimbursed to the buyer.
Ideally, each and every buyer and/or seller that comes to see me is well versed with the particulars of the contract that they have signed to buy/sell their property. This is not always the case, however, most clients understand and appreciate why interest must be paid following a good explanation of ‘the process.’
Please feel free to provide your comments and/or questions.