JUST HOW MUCH SHOULD REAL ESTATE SALESPERSONS KNOW ABOUT THE FORMS OF CONTRACTS THEY USE?

Posted: February 27, 2019 | Last Updated: February 27, 2019
Written by: Edward D. Brown

Edward D. (Ned) Brown
Pitblado LLP
February, 2019

 

The question posed in the title to this note was recently considered by the Alberta Court of Queen's Bench, in its decision Alvas v. Barrett (2018) ABQB 651, judgment given September 26, 2018, (hereinafter, the "Alvas Case"). The fact scenario in the Alvas Case was not unusual; the Barretts wished to sell their home and buy a new one. The Barretts did not wish to hold (and service the debt on and maintain) two homes at the same time, or at least for any extended period of time. Additionally, the Barretts intended financier for the acquisition of the new home had made it clear that no such financing would be available unless the Barretts sold their "old" home. Working with their realtor, who also had been engaged by the Barretts to effect the sale of the "old" home, the Barretts included a condition precedent to closing provision in their offer to purchase the "new" home which allowed them to terminate further contractual obligations with Alvas (as the seller of the "new" home), in the event that the Barretts determined that they were unable to obtain the required financing. As efforts to sell the "old" home were proving to be unsuccessful, the Barretts requested Alvas for an extension of the time within which the Barretts could finalize their financing commitment. Alvas offered to provide an extension in exchange for a payment of $8500.00. The Barrett's realtor did not advise the Barretts that if they waived their financing condition, they would be at risk of losing not only their original deposit plus the $8500.00 "extension charge" which Alvas had requested, but could also be liable for additional damages suffered by Alvas, in particular, where the real estate market was declining. The Court held, as a matter of fact, that the realtor did not understand that more than the Barrett's deposit (and probably the $8500.00) was at risk if the Barretts refused to close the transaction with Alvas. Additionally, although there was some discussion between the realtor and the Barretts about the possible inclusion of a "Sale of Buyer's Home Condition" into the Barrett's offer to Alvas, the realtor discouraged the Barretts from including that condition in the offer to Alvas. The realtor stated that she was confident that the "old" home would be sold in sufficient time to induce the Barrett's lender to unconditionally commit to and advance the financing the Barretts required to buy the "new" home. The realtor also advised the Barretts that the inclusion of a "Sale of Buyer's Home Condition" in the offer to Alvas would not be considered to be a truly "competitive" bid. The "old" home did not in fact sell in a timely manner and the Barretts repudiated the purchase of the new home contract with Alvas.

As a consequence of the foregoing, Alvas sued the Barretts for Alvas' loss sustained by virtue of the Barretts' (not legally justified) repudiation of the Alvas contract. The real estate market declined with the result that Alvas' loss exceeded the amount of the Barrett's deposit. The issue in the Alvas Case was whether or not the realtor (and the realtor's brokerage firm) were liable for the Barretts' loss. The Court held that the realtor was negligent in the performance of her duties owed to the Barretts, although the burden thus imposed on the realtor was reduced to some extent (25%) by the Court's holding that the Barretts were contributorily negligent with respect to their loss.

It appears that the realtor did not understand the meaning and possible effect of the contract where it provided that on a non-legally justified basis, the purchaser repudiated its obligations, the aggrieved seller would be entitled to both keep the purchaser's deposit and sue the purchaser for damages suffered by the seller in excess of the amount of the deposit.  The realtor suggested to the Barretts that their liability would be limited to the deposit, and, "…that she had never heard of people getting sued and that the Alvases would just remarket the property". Thus the Alvas Case judgement strongly indicates that a real estate salesperson should have an understanding of the meaning and (possible) effects of the terms contained in the real estate contracts which they utilize on a day-to-day basis.  It is not sufficient for a realtor to simply hand the contract form to a client and expect them to read and understand it.