Buyer Beware!

Business

9 minute read

May 5, 2021

Wow, I sure chose the wrong week for this topic, right?

With Monday’s blog post, and with a rash of recent articles about real the real estate industry, it’s certainly “Hate on a Realtor” week.

But this was in the queue for today so before it gets stale-dated, I want to bring up the topic and start the conversation.

If you purchased a condo and the listing read, “525 square feet,” what would you take that to mean?

Is it 525 square feet per builder plan, ie. the one that measures from inside the walls?

Is this BOMA standard?

Is this a professional floor plan engineering firm?

Or is this a photographer who also does floor plans as part of his offering?

In case you’re wondering here, there’s no real answer.  It merely underscores my next question, which is: how far off would that posted measurement have to be in order for the buyer to have recourse?

If the listing read “525 square feet” but any reputable floor plan company measured this at, say, 480 square feet, is there recourse for the buyer?

What if the condo was 400 square feet?  Surely there would be recourse then?

The answer is: it depends.

Most of the law falls into a grey area and the trouble with any legal action is, you never know how the determining party will rule.  Be it a judge or a jury, you just don’t know until you get to a decision and find out.

Bob Aaron is one of the biggest names in Toronto real estate law, and last week he penned the following column in the Toronto Star:

 


 

“Superior Court Lets Home Sellers Keep $20,000 Deposit After Buyers Backed Away From Signed Deal”
Bob Aaron
Toronto Star
April 28th, 2021

Can a buyer terminate a transaction and get their deposit back if the published listing significantly overstates the size of a house?

Superior Court decision this past March addressed this question, and concluded the buyers in the case breached their contract by refusing to close — even though there was a major discrepancy between the actual and the published sizes of the home.

In July 2020, Michael Mitchell and Richard Bowring listed their Mississauga bungalow for sale on the Multiple Listing Service (MLS). The listing stated that the interior of the dwelling had approximately 2,500-3,000 square feet. The sellers later told the court that the listing gave all realtors access to the home’s photos and details, a marketing brochure, a pre-listing home inspection, and a floor plan of the home with accurate dimensions for each room.

The brochure was also available to purchasers visiting the property and correctly stated the home’s gross, above-grade floor area as 2,155 square feet, plus 665 feet on the lower floor. The brochure stated, “buyer to verify measurements.”

On August 11, 2020, Amarjot and Chand Lamba visited the home, and signed an agreement to purchase it for $1.2 million with no conditions and a deposit of $20,000. Amarjot Lamba is a realtor in Mississauga.

Lamba claimed that he did not see anything showing the home’s correct area before agreeing to buy it, but the sellers stated that they gave all realtors access to the floor plans and brochure.

After signing the purchase agreement, Lamba learned that the MLS listing and the floor plan gave different areas for the home. The difference between the two measurements was at least 345 square feet — a difference which the buyers called “shocking.”

The sellers delivered their closing documents on time, but the buyers did not pay the rest of the purchase price.

In January 2021, the parties appeared before Justice Michael Doi in Superior Court. The sellers sought forfeiture of the buyers’ $20,000 deposit, and the buyers asked the court to rescind the agreement.

The main issue for the court to decide was whether the buyers could terminate the transaction because the MLS listing gave the incorrect area of the home.

In his decision released March 31, the judge ruled in favour of the sellers.

The law in this area is that a contract may be rescinded if there was what is known as a “material misrepresentation” which induced the buyers to enter the contract. To be classified in law as material, a misrepresentation must relate to a matter that a reasonable person would consider to be relevant to the decision to enter the agreement, but it does not have to be the only inducement for acting.

A judge will typically make this decision by analyzing the facts “to be inferred from all the circumstances of the case and evidence at trial.”

In his ruling, Justice Doi wrote that although the error in the MLS listing was not insignificant, the discrepancy was not a material misrepresentation that could have impacted the buyers’ decision to buy the house.

The sellers got to keep the deposit.

 


 

Here’s my question: if the difference was 1,345 square feet rather than 345 square feet, would the judge have decided differently?

We’d like to think so, but as I said at the onset, the only way to find out is to get in a courtroom and take it the distance.

In the above situation, I’m baffled by the $20,000 deposit on a $1,200,000 sale, for starters.  For all the sellers and listing agents out there who think that the deposit doesn’t really matter, and that it’s just “held in trust until closing anyways,” this is a case where it does matter.  On a $1,200,000 sale, I would be looking for a minimum of $60,000 as a listing agent, and if the house was being sold in competition, I’d expect more.  This isn’t central to today’s theme, but I did want to mention this.

So the listing agent and/or the seller misstated the square footage.  This could happen to anybody, right?

One of the problems I’ve always had with our industry (and there are many, as you know) is that there’s no one accepted practice of measuring or providing accurate square footage, not only that, when it comes to condos, the square footage field is not mandatory!  Only the range, which works in drop-down intervals, such as 500-599, 600-699, and so on.

I’ve always said that to provide consumers with such a lack of information is bordering on negligence.  There’s a big difference between a 505 square foot condo and a 595 square foot condo, but they’re both falling into the same 500-599 category on MLS.  And it’s at the listing agent’s discretion whether or not he or she wants to fill out the next field and say, “505 square feet per MPAC.”

Oh, but wait.  Apparently, real estate agents have been told by TRREB not to use MPAC as a source.  So I have no idea where we go from here…

I was on the TRREB Condominium Committee in 2009 and I suggested that TRREB make the square footage field mandatory, but it was no dice.  “Too much liability,” I was told.

I suppose with the lawsuit above, perhaps we see why.  But I still think that we should hold ourselves to a higher standard.  Listing a condo without precise square footage is like listing a house and not mentioning the lot size or the number of storeys.  Again, this isn’t central to today’s theme, but worth mentioning.

So is there any way for a listing agent and/or seller to indemnify themselves from situations like the one above?

This will ultimately be answered in a court, but it doesn’t stop agnets from trying!

The lazy ones will do this:

That drives me nuts.

This is not legally-binding, even though agents think it is.

You can’t just write, as though it were an afterthought, “Buyer To Verify All Measurements” and think you’re off the hook if you list a 700 square foot condo as 950 square feet.  But many agents think it does, and perhaps some buyers and buyer agents do too.

This is bordering on pathetic:

Verify “Information?”

What does that mean?

Is this an attempt by the listing agent to indemnify him or herself of anything in the listing?

The house is a 3-bedroom but they’ve called it a 6-bedroom.  Well, too bad, so sad, they included “Buyer To Verify All Information” in the brokerage remarks of the MLS listing so the buyer has no legal action.

Uh-uh.  No way.  I don’t think so.

It bothers me that listing agents think this is legitamite.

So what about this:

The Buyer and Seller hereby confirm that they fully understand and agree that any marketing materials and publications (including, but not limited to MLS listing, feature sheets, virtual tour, floor plans, advertising of any kind) for the subject property not attached herein do not form part of this Agreement of Purchase & Sale, and that the Buyer had the opportunity to verify all pertinent information prior to submitting the offer contained herein. The Buyer agrees to indemnify and hold harmless the Seller, listing brokerage, and Sales Representative or Broker for any errors, omissions, and representations, express or implied, contained in the above.

It’s certainly better than what’s above, that’s for sure!

But will it hold up in court?

“Buyer agrees to indemnify and hold harmless the Seller, listing brokerage, and Sales Representative or Broker…”

If a buyer signs a Schedule B that includes this clause, have they signed away their right to litigate a misrepresentation like the one noted in Bob Aaron’s article above?

The truth is, I don’t know.  I would think they have, but it depends on the type of misrepresentation and the scale.

A decade ago, I mistakenly listed the taxes for a condo as $1,786.58 rather than $1,876.58.

The seller mixed up the “7” and the “8” when she emailed the taxes to me, and thus they were understated.

The buyer objected upon closing and demanded a $10,000 abatement.

While this was an “honest mistake” on the part of myself and the seller, the buyer did have a legitimate complaint.  We under-stated the taxes by $90.  Per year.

But the $10,000 abatement was extortion, and my seller said, “She can bugger off,” and didn’t budge.  The sale closed without issue.

Two months later, I received a notice from the Real Estate Council of Ontario saying that a complaint had been filed, against myself, on behalf of the buyer.  RECO asked me to account for my ‘side’ of this story, and I did.

I was found to be in breach of multiple sections of the Real Estate & Business Broker’s Act for misrepresentation, due diligence, fair dealing, et al.

I was “sentenced” to three days in RECO jail, which is what we call the nonsense courses that they force us to attend in cases like this.

I will admit: I failed to obtain an original source document of the 2011 Final Tax Bill from my seller.  I was wrong.

But the buyer didn’t get the $10,000 she was trying to extort from my seller!  I mean, $90 per year, for the four years she’ll probably live there.  Material difference?  No.  But difference nonetheless, and it seems to me that any difference, in any sale, is grounds for some sort of objection.

How the buyer deals with the misrepresentation is up to he or she, and ultimately it will depend on the scale of that misrepresentation, the damages caused, and to some extent, whether the misrepresentation was deliberate or accidental.

If you bought a condo and the listing said “marble counters” but they turned out to be quartz, how would you feel?  Do you know the difference between marble and quartz, either in terms of cost or durability/functionality?  Do you actually care?  Would you feel like you were owed something, or would you want to stick it to the seller and the listing agent just out of principal?

The truth is, I understand how any error or misrepresentation should have ramifications, but I also understand why they shouldn’t.

That sounds contradictory, but it’s not.

I mean that I think if the listing agent or seller represents marble counters when the counters are quartz then there is a greivance on behalf of the buyer, no doubt about it!  Absolutey no denying that.

However, if every single inconsistency, no matter the size, scope, value, or type, had legal ramifications, then property sales would never close.  If you could threaten not to close a purchase because the bedroom is 10′ 2″ and not 10′ 4″ as indicated in the MLS listing, or because the flooring is not hardwood but rather engineered hardwood, or because there’s a 2-inch scratch on the floor that was covered by a carpet during the listing period, then no deal would ever close as scheduled.

It would be chaos.

And that is why the courts always hold “buyer beware.”

It’s not because the courts want sellers to screw buyers, but rather it’s borne of necessity.  It’s like how all legal systems are predicated on citizens knowing every single law, even though most don’t.  The only way the system can work is to say, “This is illegal, and you did it,” and then charge the accused, because if you had to ask, “Did you know this was illegal?” the system wouldn’t work.  By the same token, the buyer has to satisfy him or herself of the property before committing to the purchase, in almost every case, and give up the right to recourse if an immaterial error or misrepresentation has been made.

What constitutes “material” is up for debate and ultimately up to the courts.

Agree or disagee, it’s no matter to me.

But understand.  That’s the key here, as I try to educate the public on the system and its workings.  Understand that you have to do your due diligence in advance and that if you want to rely on a feature sheet, or the MLS listing, or photos from a virtual tour, you’re doing so at your own risk.

What you see with your own eyes matters more than what you read on that paper in front of you.  And as I always preach, take some personal responsibility in what you purhcase.  A square footage report from MPAC costs a real estate agent $5.00, but how many agents pull them?  We pull thousands per year, but many listing agents won’t spend the five bucks before they list condos for sale, and many buyer agents will ask, “Do you have an exact square footate?” and rely on the listing agent, rather than swiping their VISA for five dollars.

Diligence is key.  Use the recent court case above as a roadmap to why

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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23 Comments

  1. Ed

    at 8:20 am

    From the Bob Aaron article above-
    what gave me a chuckle was that the buyer trying to back out of the deal was a realtor.

    1. Frances

      at 7:21 pm

      That’s what jumped out to me too. I find it hard to have any sympathy for a buyer who is a realtor and should therefore know the importance of due diligence. The buyer also visited the home in person, he had the opportunity to see for himself what size the place was.

  2. jeanmarc

    at 8:21 am

    I think I mentioned this in one of your previous blogs a year or two ago. A veteran agent that we hired to sell our home misrepresented stating that we had a central vac system in the listing. There is a rough in but no central vac. The agent had full access to the home and made the mistake of putting that item in. After closing, the buyer was asking where is the vacuum? My agent ultimately had to suck up the cost of buying them a central vac system. So much for a “veteran” agent who didn’t do the proper due diligence. Given that the home sold for over $1.4M over 10 years ago (in less than one week), the agent still made a pretty penny (2.5% commission). Goes to show mistakes can be made regardless of the situation.

  3. Pingback: Best Real Estate Agent In GTA – Buyer Beware! – Toronto Realty Blog
  4. Pete

    at 9:27 am

    Something I’ve always found confusing is what counts in square footage anyway? In the above example 2,155 square feet, plus 665 feet on the lower floor = 2,820 square feet which is within the 2500 – 3000 range in the listing. So I guess lower level doesn’t count? But why not? Is it a crawlspace, and therefore not livable? If it’s just an unfinished basement, why wouldn’t it count? It seems rather arbitrary to me.

    1. JL

      at 9:47 am

      There’s certainly confusion, but a part of it probably comes from it not being mandatory (allowing everyone to set their own rules as to what to advertise).
      What annoys me most are the condo listings which include the balcony in the total square footage! (some of them clarify in the remarks [x + balcony = y total], but I’ve seen a few that just let the total “range” stand on its own)

      1. Peter Dewar

        at 1:39 pm

        We are quasi looking at properties in Mexico and they generally include the outside covered space in the square footage.

  5. Condodweller

    at 10:21 am

    “On a $1,200,000 sale, I would be looking for a minimum of $60,000 as a listing agent”

    Makes sense, you want to make sure the agents get paid if the deal doesn’t close. I know that agents have sued their buyer client (BTW who is the buyer client, the seller or the buyer given the seller is paying their commission?) for their commission after the buyer didn’t close on the deal because they did their job finding a property and the agreement says that they will find a property not that it has to close, in case the buyer changes their mind.

    Bonus question: in this case who gets the $20k deposit? Does the seller get to keep it? Assuming the seller will find a buyer therefore those respective agents will get their commission from the sale. But what about the buyers agent? Does she(?) get the money to offset her commission? Or does she sue her client for it, or the difference? Oh, wait…

    1. David Fleming

      at 12:27 pm

      @ Condodweller

      Come on, you’re better than this.

      The deposit isn’t about commission. It’s about ensuring the buyer is committed to the transaction. A $90,000 deposit on a $1.2M sale shows the buyer is serious, has access to funds quickly, and intends to close. A $20,000 deposit raises a red flag to me.

      1. Condodweller

        at 3:19 pm

        Yes I know David it’s just that my mind immediately went to what happens to the deposit in this case and then noted that your recommended amount happened to be 5%. I’m sure the seller sold the unit eventually probably for more so it was the sellers gain I would imagine. Can you confirm?

        To stay OT I agree it’s buyer be aware when it comes to the size. Having said that though the timing is interesting, last August. What are the odds that this person bought the house using a virtual tour and wasn’t in the house to confirm?

        See when I bought my condo based on plans I put in a condition that if the size was less I would subtract it from the price. Yes, the good old days when a buyer could protect himself.

        1. David Fleming

          at 9:20 am

          @ Condodweller

          Totally fair.

          As @Sigruper pointed out as well, some agents will chase commission if a deal doesn’t close as it’s in the boiler-plate text of the listing agreement.

          In a case where the property is re-sold for a higher amount, the seller still keeps the deposit. If the property is sold for a lower amount, the seller can sue the buyer for damages, and as we saw in 2017, they will win.

          1. Condodweller

            at 11:54 am

            Well would you look at this. How’s that for timing.

            “Seller beware: Real estate agents can collect their fee even when a buyer defaults on a sale, B.C. man learns”

            https://www.cbc.ca/news/canada/british-columbia/bc-commission-real-estate-lawsuit-1.6015748

            “It would be unjust to let the seller keep the deposit. Not to mention the fact the broker had dual representation. ”

            Seller is left with about 5% after the buyer walked away, therefore, broker deserves to keep 100% of it.

            Let me guess, the broker will hold on to the funds until the lawsuit is settled, because you know, it’s already sitting in their trust account. I’m not one to gloat, but I’m rarely proven right this fast. According to google the article is 1hr old.

            “”Fortuitously, the Armstrongs have been paid deposit monies of $70,000, nearly enough to pay the commission. It would be unjust in these circumstances were Century 21 Seaside to be sent away empty-handed, while the Armstrongs pocket the fruit of the Realtors’ labours,” it says.”

            While I’m sure David wouldn’t do this, and the article does say this is rare, however, note that usually when the $hit hits the fan, someone has to face the……um music.

            Note that the deal was made in August 2017. Perhaps, the broker knew that it’s not a good idea to sue your customers, but what if you think the market is heading down, and you might have difficulty finding buyers for expensive cottages. You might think it’s unjust to let the seller keep the downpayment which again just happens to be the commission. I’m sure it’s total coincidence.

            BTW just because you’re paranoid doesn’t mean they’re not out to get you ????

            Keep this at the back of your mind as you sign your deal at record prices at record low interest rates.

            1. David Fleming

              at 3:15 pm

              @ Condodweller

              I read this article in the car three hours ago and was about to post it!

              You beat me to it!

              I have no problem with buyers altering the standard “Buyer Representation Agreement” to delete the clause referring to the payment of commission of transactions that don’t close.

              I’ve had ONE transaction in 17 years that didn’t close, so I guess it really depends on the odds and the market.

          2. Condodweller

            at 11:57 am

            See even rereading I screwed it up. The quote after the link has my comment re dual agency, though it’s also from the article. I shouldn’t have put it in quotes.

          3. Condodweller

            at 7:52 pm

            Sorry David, I will hold my horses next time.

    2. Sirgruper

      at 12:26 am

      The standard listing agreement does say that the agent gets paid on a failed deal. I always change this and it’s never been an issue. Any self respecting agent will not take the deposit funds and will relist and get paid on the second closing. That said I’m always amazed how low the deposits are even in a bidding situation. If the closing is long you really should have a bigger deposit. Markets can change by 10% very quickly and a 5% deposit to me doesn’t cut it. Never an issue in a raising market but a huge problem in a falling market. When buying I always provide oversized deposits. It’s a very effective differentiator and it cost you nothing except nominal interest for a short period.

    1. Appraiser

      at 12:03 pm

      Such an amateur.

      TRREB sales data indicates that April 2021 was the busiest April on record and the second busiest month in history for any month (next to last month).

      P.S. LG says condos are ‘smokin : “Articles about Toronto’s cooling housing market are focusing on the aggregate statistics which are dominated by low-rise houses (which are still hot, just not as hot”

      “If you look at the condo market, it’s on fire. Prices are up more than 10% since January and at an all time high.” https://twitter.com/JohnPasalis/status/1389913208169934852

      1. J G

        at 2:54 pm

        How is condo prices at all time high? Ridiculous statement. 416 condo still BELOW feb 2020 high.

  6. marmota

    at 6:08 pm

    ” Legitamite”, not sure if it was on purpose, but it sure sounds like dynamite!
    If they put an offer unconditional is on them. Question here is: How accurate is our price per sq foot? we could be looking at significantly higher (or lower) price per sq ft as key point of reference.

  7. Contemplation_State

    at 7:58 am

    Great read! I’m going through something similar right now. I just purchased a downtown condo listed as 2 bedrooms and then discovered the sellers bought the same unit as a 1 bed + den 1.5 years ago. The bedrooms are also listed as “1” on the MPAC, not “2”. Is this grounds for recourse? As we know, in this downtown market, the home value for a 1+1 is very different than a full 2 bedroom unit. And from what I can see, they did not make any changes to the “den” but listed it as a bedroom anyways.

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