Seller remorse could cost over $850,000 in damages

BY JAY BRIJPAUL

During December 2016, the real estate market was on a decline. A seller sold her home for $800,000 with a closing date of six months later in June 2017. The market picked up and by June that year, the value climbed to $900,000. The seller refused to close the transaction claiming that she undersold her property. The buyer filed a lawsuit.

The buyer, a realtor who had disclosed his profession as required, sold his previous home in January 2017 in order to buy the other home. The home he bought was ideal for his family. It has a den on the main floor to cater for the buyer’s grandparents who cannot climb stairs. There are three full washrooms on the upper floor to accommodate the buyer’s growing family. The home is located within walking distance to schools. It has parking spaces for six vehicles, catering to the buyer needs.

The entire case became a tangled mess when the seller sued her realtor for misrepresentation and collusion. She alleged that her realtor colluded with the other realtor who bought the home for himself. She insisted that her realtor deliberately undersold the property to help his friend, a fellow realtor. The seller also claimed that she was pressured into the transaction and that her realtor never explained the contract to her. She declared that she was uneducated and relied on her realtor’s judgement.

During discovery, the evidence revealed that the home was on the market for over 25 days before it was sold. There were fifteen showings and two low-ball offers during that time. A third offer was negotiated back and forth until both parties arrived at a happy medium. June 2017 was a blockbuster month for real estate with massive price growth. The seller felt that if she refused to close, she could gain from the increase in value. The court encouraged all parties to settle. At the settlement hearing, the buyer offered to settle for $50,000 plus court fees and the sale would be cancelled. The realtor agreed to forfeit his commission if the seller agreed with the buyer’s offer. The seller refused to settle, and the case went to Supreme Court.

At the hearing, the buyer asked for specific performance. Specific performance is when the injured party, in this case the buyer, does not want money as a settlement. He wanted exactly what was in the contract – to buy the home at the purchase price that was agreed to. The seller argued that specific performance was not warranted since the buyer bought another suitable home in August that year and that the value had gone up substantially as well. As such, the buyer did not lose from the price escalation. If there were to be any financial damages awarded, then, it should be minimal and will be monetary.

Since June 2017, the value of the home went up to $1,400,000. The buyer asked that if specific performance was not granted, then, damages should be the difference between the original purchase price and the price growth plus legal cost. The seller countered by offering to return the buyer’s deposit of $10,000 and all parties would cover their own legal fees. The buyer refused.

Court proceedings lasted for a full week. The buyer got specific performance. In her closing, the judge remarked that based on the evidence provided, the seller’s realtor did not misrepresent or collude with the other agent. It was simply a case of seller’s remorse.

The court appointed an attorney to close the transaction on behalf of the seller at the original sale price of $800,000. The seller was responsible for both side’s legal fees and court cost which amounted to well over $250,000. It’s an expensive lesson for the seller. Had she closed the transaction and bought another home in June 2017, that property would have appreciated in value. Now her loss is substantial; around $850,000. This is a big win for the buyer. When he signed the purchase and sale contract, he provided a deposit of $10,000. Three years later he enjoyed a price acceleration of $600,000. The sellers on the other hand, suffered a terrible financial blow. It would be difficult to re-enter the real estate market.

There are many lessons to be learnt. First, be absolutely certain about your intention. A real estate contract cannot be broken unless all parties agree. Next, understand what you are signing. If you are not certain, ask for legal advice. Always ask for a copy of the contract you sign. This way it cannot be tampered with. If you need to get out of a contract, build bridges, not walls. It’s best to tackle the problem as soon as possible. Sometimes, we must give up the cheese to get out of the trap.