A recent Alberta case examined a real estate agent’s standard of care after buyers entered into a real estate contract to purchase a property but failed to close on the deal and were left liable to the sellers.
An Alberta couple (the “buyers”) hired a real estate agent (the “agent”) to help them purchase a property in Calgary and sell their property in Cochrane. The buyers already owned a home in Cochrane and a condominium in Calgary.
With the agent, the buyers entered into a first real estate purchase contract to buy a home in Calgary; however, the purchase did not proceed because of a contract financing condition.
The buyers continued to look for properties with the agent. Ultimately, they entered into a real estate purchase contract in March 2009 for a property in Calgary. The contract was subject to both a financing condition and a property inspection condition. The buyers executed waivers of the property inspection condition and the financing condition.
In April, 2008, the buyers received a letter from Royal Bank Canada (“RBC”) telling them they were pre-approved for a mortgage of $460,000. The letter stated that the financing was conditional on the sale of both of their other properties.
However, their Cochrane property did not sell. The buyers did not take possession of the sellers’ property on July 15, 2008, which was the closing date in the contract.
As a result, the sellers brought an action against the buyers. The sellers obtained judgment against the buyers for $67,175 plus interest and costs.
The buyers then brought a third party action against the agent and her broker, alleging negligence, negligent misrepresentation and breach of contract. The agent maintained that she met the standard of care of a real estate agent and that the failure to close was a result of the buyers’ own actions.
Issues and Parties’ Positions
The buyers allege that the agent failed to meet the standard of care in her representation of their purchase of the new property and the sale of their Cochrane home. In essence, the buyers claimed that the agent did not properly review the real estate purchase contract and did not properly advise them on the inclusion of certain clauses and on their potential liability. In addition, they argued that the agent was both negligent and contractually breached the listing agreement when she failed to appropriately price their Cochrane property, failed to recommend reductions in price on the property as the closing date neared, and failed to diligently market the property. Finally, they stated that the agent negligently misrepresented the likelihood that she could sell their Cochrane property before the new property deal closed.
The agent responded by stating that she went over all the contracts with they buyers and advised them of all the risks. In addition, she maintained that the buyers were experienced in the purchase and sale of real estate, and they had an obligation themselves to read the contract which clearly outlined their liability should they fail to close. The agent claimed that she never guaranteed she could sell their existing property and that she properly priced and marketed it.
Real Estate Agents’ Standard of Care
Regarding the standard of care owed by real estate agents, the court stated that a real estate agent is in a fiduciary relationship with clients and a duty of care is owed and that the standard of care is what a reasonable and prudent agent would do in the circumstances.
In order to satisfy the court that the real estate agent was in fact negligent in her conduct it must be shown that:
(a) a duty of care was owed by the third party defendants to the third party claimants;
(b) there was a breach of that duty of care either through knowingly failing to meet the required standard of care or failing to meet the standard of a reasonable person in the same circumstances;
(c) the negligent conduct factually caused the third party claimants’ loss;
(d) the loss suffered was reasonably foreseeable; and
(e) a loss was in fact suffered by the third party claimants.
In addition, the court stated that the standard of care for real estate agents includes providing specific information to purchasers that in the event they do not fulfill their obligations under the contract, the purchasers risk not only losing their deposit but also any difference in price between what the buyer’s agreed to purchase the property for, and the price the sellers ultimately receive if the sellers have to resell their property.
After reviewing the facts and evidence, including expert evidence presented at trial, the court did not find that the agent had breached her standard of care in her actions relating to the Cochrane property. It further found that a realtor’s failure to advise a client to obtain legal or other expert advice at the time of entering into a real estate purchase contract if the client refuses to include a sale of buyer’s home condition was not outside of industry standards. Additionally, the court stated that the agent’s failure to communicate with the bank on the financing was not negligent.
However, the court found that the agent did not meet the standard of care because she failed to advise the buyers that they could be liable if they did not close the deal and by failing to advise them on the risks of waiving the financing condition. Further, she should have been aware of the declining real estate market which would have clearly increased the risk to the buyers in waiving the financing condition. Finally, the court determined that the agent was negligent in failing to carefully review and fully explaining the contract and by failing to advise them on other matters. The court stated:
“It was still [the agent]’s job as a professional real estate agent to provide clear, timely and fulsome advice with respect to the provisions of the [contract], as well as the risks that the [buyers] were facing in failing to close the [deal]. She did not perform these essential functions.”
As a result, the court found that negligence was proved on the balance of probabilities and apportioned the fault to be 75% the agent and broker, jointly and severally, and 25% to the buyers for contributory negligence. Damages in the total amount of $67,175 were apportioned between the parties in those percentages.
There are significant legal and financial risks in entering into a residential real estate transaction. Such large purchases should not be made without proper guidance from an experienced lawyer. Without sound legal advice, you could end up paying more than you should for your home, or accept an offer that is too low, or worse yet, end up with a transaction that falls through due to missed paperwork, or details and technicalities that go unnoticed.
At DBH Law in Calgary, our real estate lawyers have more than 25 years of combined experience acting for purchasers, lenders, and developers through all stages of residential real estate transactions.
We help our clients avoid huge areas of risk, including poorly drafted or incomplete agreements of purchase and sale, hidden fees, encroachment or easement issues, complex concerns like properties held in trust, and similar pitfalls. We also look for contract language which may impose unfavourable duties or obligations. To learn more about how we can help, contact us online or by phone at 403.252.9937.