The sweetest newlyweds have been looking at homes, and although the mortgage lender has told them their absolute maximum qualifying amount, their dream home has just come on the market. Too good to be true, they write an offer a touch higher than they were approved for, and successfully secure a contract conditional on the approval of financing. The mean old lender informs them they can't qualify and need a co-signer. Thankfully Dad is willing to be that co-signer to make the dream happen. Apart from being a dad and hoping my kids don't read this and get any ideas, let's take a few moments to think through the requirements of making such a scenario happen.
New buyer, new relationship
The original clients have a buyer's representation agreement in place already, so the nature and obligations of their relationship are already established. By adding a new buyer into the situation, the brokerage needs to clarify the relationship and obligations with that new buyer. The brokerage in this situation must prepare, and review a buyer's representation agreement with the new buyer and have them sign it, understanding they now have the full representation and protection of working with a licensed brokerage on this transaction. If they are uncomfortable with a broad agreement, a REALTOR® can specify in that agreement that it is only effective for this one property.
Other paperwork
It should go without saying, but I will say it anyway. When a buyer starts a relationship with a brokerage, even if they are late to the party, they must be disclosed about agency relationships. This is done by way of the Consumer Relationships Guide before the representation agreement. They must also be identified for FINTRAC as they are now going to be a buyer as well. Additionally, the brokerage trade record sheet will need to be updated accordingly.
Purchase contract addition
In this scenario, the purchase contract is already formed between the seller and the buyer. This is the most likely stage when an additional buyer is tagged in. Because the contract is formed and finalized, it cannot be changed by simply writing in the new buyer and getting the parties to initiate the change. The proper way to change the contract is to draft a contract amendment, making the change and following the flow of progression from top to bottom. For the example given, the sellers and the newlywed buyer's names are on the top of the amendment. Then the change of adding the buyer to the contract is in the body of the amendment, and the sellers, newlyweds, and the new buyer all sign the bottom of the amendment.
Content matters
Having established the process by which this can be accomplished, you may wonder, "what goes in the body of the amendment to add a buyer?" I'm glad you asked because this is extremely important. Recognizing the new purchaser could be signing this amendment having never seen the contract they are agreeing to, you must ensure three items make it onto the amendment. First, the buyer has had a chance to review the agreement and any related documents, ensuring they have done so with the consent of the current buyers. Second, they have the opportunity to seek independent legal advice should they so choose. And finally, they agree, in light of the first two items, that they, the new buyer, agree to be bound by all responsibilities, terms, and obligations of the contract.
By following the proper course of action when adding a buyer to the purchase contract, as well as the proper content, protects all parties involved from some liabilities in this area. The seller needs confidence that the buyer is properly attached to the deal, and the lender needs confidence that they can secure financing based on the new purchaser without issue. This will help our newlyweds get the dream home they want using the financing they need and help keep all parties happy while the transaction proceeds to close.