Salespersons’ Duty to Obtain Highest Price – Part 2 #75

By Gerry Neely
B.A. LL.B.

You have listed for sale a house, to be described in the ad as a handyman's special, which is located on a heavily-trafficked road in the middle of two blocks of mixed residential tenancy and low profit non-conforming commercial uses. Over the past ten years, repeated attempts to rezone the area commercial, the most recent of which was three years earlier, had all failed because of the municipality's refusal to extend services. The price reflected the pessimistic outlook for any change in the municipality's position.

Halfway through the six month exclusive listing and following the November elections and change of council, the new council voted to extend the services and to rezone the two block area. Experienced I.C. & I. Iicensees in your office were of the opinion that this would double land values, an opinion shared by other experts in a lengthy newspaper article featuring this development.

What do you do? Do you write your principal who lives out of town and is unaware of the development and suggest to him that he may wish to withdraw the property from the market or increase the price? Or do you just ignore the changed circumstances and continue to market the property at the listed price?

An indication of what you should do is found in a decision of a case that dealt with the rapid rise in value of real estate in Vancouver in the autumn of 1980 and early 1981. Prices were established between the licensee and the owner in listing agreements signed September 1st and September 16th, 1980, for the sale of a total of thirty six 99-year leasehold suites. Eighteen units were sold by October 1st and thirteen more were sold by October 24th. The first few sales were individual lots to individuals. The bulk of the remaining sales were made in groups of two or three while the last two sales were of eleven units to one individual. An offer to purchase the remaining five units in late November was made on behalf of a friend of the licensee. All sales and the last offer were made at the original listing prices. The owner was considering the last offer when he became aware that one of the units sold in September had been resold at nearly double the price the owner had received. The owner refused to accept the offer. Two of the five units listed initially at prices of $24,450.00 and $28,450.00 were sold in January, 1981, by the owner at about $50,000.00 each.

The owner sued for damages for failure to obtain the top price, arguing that either the prices set were too low at the beginning or the licensee failed to advise the owner of the explosive increase in prices.

The Judge held that there was no breach of duty by the licensee in the setting of the prices at the beginning. There was, however, a great deal of evidence from various sources, including the multiple listing service of the Vancouver Real Estate Board, that by September 30, the licensee knew or ought to have known "the market for the product he was selling was rapidly increasing and in duty to his client he was bound to go and speak to the owner and tell him."

The Judge held that by failing to give the owner the information the owner was entitled to, the owner was deprived of the opportunity of exercising his discretion in setting a proper price structure. Because the owner was deprived of this opportunity, the Judge held that he was entitled to damages on the basis of what that opportunity might have been worth.

The optimum damages the owner might have received would have been $300,000.00 had the owner been able to sell in January, 1981, the units for which sales were made October 24th. The evidence indicated, however, that rather than selling all of the units immediately, the last of the five units for which the offer had been made in November, 1980, was not sold until November, 1982, when the price had fallen to $34,000.00. One of the same suites had sold in March, 1982, at $59,500.00. The Judge mixed all of these ingredients together to come up with damages in the amount of $150,000.00, with prejudgment interest fixed initially at 17%.

As both this case and the case referred to in Legally Speaking #74 demonstrate, the licensee's duty is to keep on top of market prices and to advise the owner of current market prices.

1.

Virtue v. United Realty Ltd. et al,S.C.B.C. 1985 B.C.D. Civil 3799-01.

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