Prevent Client Remorse in a Fluctuating Real Estate Market #552
CATEGORY: Legally Speaking Practice Tips
TAGS: Buyer's Acknowledgement of Information Comparative Market Analysis Fair Market Value Market Value Records Remorse
In fluctuating markets, remorse claims become all too common. Consumers regret and want to escape deals. Ensuring you’re well prepared upfront with the proper documentation, the best information and best practices, REALTORS® can help prevent client remorse. Yet, client remorse and uncertainty can still occur despite your best efforts.
Why do clients get remorse?
Remorse can affect anybody and everybody regardless of how big or small a purchase can be. In the case of real estate, client remorse can happen on both the seller and buyer side.
For a seller, remorse is basic. They did not receive what they thought they should have for the property. They may allege that you advised them to list too low, pressured them to accept an early lower offer or to forgo an early higher offer hoping to get a higher offer.
Remorse is quite the opposite for a buyer. In their view, they paid more than they should have. They may allege you did not give them full information on the area, similar properties, or the property itself or that you pressured them to offer over asking with no subject conditions.
Common to most remorse claims is that the consumer believes they did not achieve a fair deal and did not receive all the information they should have. As a result, the claimant often felt unduly pressured.
The BC Financial Services Authority recently published a Broker’s Brief reminder entitled “Hot Market Buyer's Remorse,”1 which prompts licensees on the importance of communicating with clients and documenting communication and advice given to clients. In particular, when a buyer elects to make a subject-free offer, REALTORS® should document the advice, including the risks involved and use the Buyer’s Acknowledgement of Information – Recommended Conditions form.
In a recent case, the court highlighted the importance of such discussions when listing or assisting a buyer.2 In that case, the licensee rightly advised the client there were uncertainties in the housing market, a more stringent mortgage stress test was expected, and other initiatives that may impact prices in the market, including for example the empty home tax and foreign buyer’s tax. Therefore, documenting those discussions is important in preventing and defeating claims.
The basics when advising on value
As the age-old adage goes, nobody is perfect. It is well settled that a licensee will not be held to the same standard as an appraiser. However, evidence of gross over or undervaluation may lead to a finding of negligence.3
As REALTORS® aren’t appraisers, what do you have to do instead?
The court in Currie v. Sonnenberg stated:
“[t]he defendants did not have a legal duty to obtain the best possible price for the property. Rather, a realtor has an obligation to act in accordance with the applicable standard of care for giving advice on price for a property."4
And what that standard of care is may change from property to property and from one circumstance to the next.
As usual, Brian Taylor says it best:
“It is the Realtor’s function to make sure that their client has all pertinent and available information before them, so that the client may make an informed decision. It is not the Realtor’s function to make that decision for them.“5
Tips to avoid valuation issues and claims of remorse
When dealing with a seller, it may be best to do the following:
- To have and document discussions about the market generally and specifically in the area.
- To review the listing agreement in detail and document that review.
- To provide a CMA for the property to your seller and keep a copy of that for your file.
- To consider the need to alter that CMA if market conditions change over time as may be required.
- To document your recommendations/advice and the client’s instructions.
- To recommend legal advice and other professional advice when issues or questions that arise are beyond your expertise, like a potential appraisal if needed.
- Do not promise to sell for a certain price or date.
When acting for a buyer, the following may help:
- Have the exact same discussions and document them about the market generally and specifically in the area.
- Update those discussions as buyers' desired area, price range or wish list changes.
- Provide an updated list of comparable properties that meet the buyer’s criteria.
- Provide a CMA for a property the buyer wishes to offer and keep a copy.
- Discuss with the buyer the terms and conditions of any offer and Contract of Purchase and Sale and document those discussions.
- Have a full, frank and documented discussion about subject conditions, using the Buyer’s Acknowledgement of Information – Recommended Conditions form when going subject-free, and recommend appropriate legal and other professional advice.
Buyers and sellers should be made aware in reviewing Contracts of Purchase and Sale that these are legal and enforceable documents, and they must review each offer and counteroffer fully and carefully and understand their rights and obligations. The court will hold them to what they have reviewed and signed.6
Listening to your client and documenting any concerns they may have is a key to mitigating risk. You may be able to solve any concerns by reminding clients of the discussions you had with them and documented. For example, reminding them of what you told them and of the documents you gave them on the topics of value and being subject free.
As always, provide all your recommendations and the relevant information for a property, and remember it’s a REALTORS® job to advise and let the client decide.
Regret and remorse are natural in fluctuating markets and life. However, arming yourself and empowering your clients with the best information, documentation and research on a property and value helps avoid remorse.
|BCFSA The Broker’s Brief Hot Market Buyer’s Remorse July 28, 2022.
|Sandhu v. Goetz-Stankiewicz, 2022 BCSC 161 at para 7.
|Currie v. Sonnenberg, 2017 BCSC 526 at para 42.
|Currie at para 44.
|Legally Speaking Seller’s Remorse Not Rewarded #494 May 21, 2017.
|Legally Speaking Remind Consumers: They Are What They Sign! #5 September 18, 2018.
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