Salespersons’ Duty to Obtain Highest Price #74

Aug 01, 1985

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By Gerry Neely
B.A. LL.B.

A short listing and a quick sale not only puts money in the bank and caviar on the toast, but it also avoids some of the problems for a licensee that can arise where property is on the market over a lengthy period of time and the salesperson's familiarity with it has conditioned him to believe that the owner's asking price is too high.

In an Ontario case, property was listed for sale in the fall of 1979 with one agent for the price of $29,900.00. It was listed with another agent in the fall of 1980 at the same price and relisted in the spring of 1981 for $25,900.00. The listing expired in December, 1981. In March, 1982, a salesman in the second office who had attempted to sell the property when the price was set at $29,900.00, brought an offer of $17,000.00 and strongly urged the owner to accept.

When agreement was reached at a price of $19,500.00, the purchaser flipped the property for $29,000.00. The owner subsequently learned of this and demanded the return of the commission retained by the agent, which the agent refused to do.

In the action that followed, the evidence established that the salesman genuinely thought that $17,000.00 was a good price. However, he acknowledged that he had no knowledge of current vacant land prices because he was involved in residential real estate sales. In the course of a very busy day during which three counter-offers were carried back and forth by the salesman, he either didn't have the time or didn't take the time to consider what his relationship was to the owner. In his evidence at trial, the salesman described himself as a middle man whose only responsibility was to bring a vendor and purchaser together.

The judge, however, held that his relationship was that of an agent to his principal, and his duty was to the owner who was ultimately to pay the commission. His duty included obtaining the highest price possible. His failure to perform this duty led to an order for the repayment to the owner of the commission.

This case illustrates the difficulty for a licensee whose duty is to his principal but who knows that a purchaser with whom he has been dealing is interested in buying a specific kind of property, such as vacant land, at a fire sale price. In this case the owner argued that the agent's duty was to ask the purchaser what would be the highest price the purchaser was prepared to pay. That the agent failed to do. When asked to assess the consequence of this failure, the judge said that even if the question were asked, there was no obligation on the part of the purchaser to answer the question truthfully or to answer it at all. Suppose, however, that the purchaser does say "I will pay $17,000.00 but I will go as high as $25,000.00." With that knowledge can the licensee do anything other than advise the owner not to accept the offer and to counter-offer? Apparently not, if the licensee is to discharge his duty to the owner and earn a commission.

As an alternative to being placed in this difficult position, the licensee could explain why it would be in the purchaser's interest to have the licensee act as the purchaser's agent, with the purchaser paying the commission. This will be a limited alternative, limited not only by the prevalent practice of the vendor paying the commission, but whether or not there is a written listing contract for the property to be purchased.

The owner had also sued for damages based upon the price actually paid by the purchaser and the price the purchaser might have paid. The agent was fortunate in that the judge decided that there was too little evidence as to the price the purchaser might have paid and declined to award damages. In the same circumstances, if these facts were before the Supreme Court of British Columbia, an award of damages might well have been made, as will be apparent from the facts of the case to be discussed in the next column.

  1. Lewis v. Simcoe Real Estate,33 R.P.R. 515.

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