Apr 01, 2008

Take Care When Pricing Property #418


By Jennifer Clee

Advising a seller as to an appropriate list price or reasonable sale price is fraught with risk in a hot market. A seller’s euphoria at achieving a sale price beyond wildest expectations quickly dissipates when the property resells shortly after at a significantly higher price, or when sales of comparable properties suggest the property was underpriced. Given the stakes involved, unhappy sellers don’t hesitate in resorting to the courts to seek damages from their REALTORS® for undervaluing their properties.

In determining the liability of the REALTOR® in regard to valuing property, a court will consider the steps taken to investigate market value, the availability of sales information on comparable properties, market conditions, the seller’s sophistication and the nature of the agency relationship with the seller.

A recent decision of the BC Supreme Court (1) considered a claim by a seller against a REALTOR® for allegedly undervaluing the seller’s 9.32-acre parcel of undeveloped land. On his unlisted property, the seller accepted an offer brought by the REALTOR®, signing an exclusive listing agreement and Limited Dual Agency Agreement (LDAA) at the same time.

The seller sued the REALTOR® for breach of contract, breach of fiduciary duty and negligence, complaining the property sold for $400,000 less than its fair market value. 

In considering the negligence claim, the court found a duty of care did not arise on the REALTOR®’s part until the seller accepted the buyer’s offer and signed the LDAA. Before that time, there was no agreement, no reliance, nor any relationship between the seller and the REALTOR®. The court found that, even if a duty of care had arisen earlier, the seller failed to establish that it had been breached. Even if the REALTOR®’s analysis of the market value had been wrong, he wasn’t negligent if he met the proper standard of care. As the seller failed to establish the customary standard of care, it wasn’t possible for the court to determine whether the REALTOR® had failed to meet that standard. The negligence claim was dismissed. 

The seller complained the REALTOR® had breached his fiduciary duty by failing to disclose a material fact: that the buyer was a developer. The court held the provisions in the LDAA requiring the REALTOR® to act impartially and modifying the REALTOR®’s duty of disclosure superseded any conflicting common law, or obligations set out in the Working With a REALTOR® brochure. The court determined the buyer’s occupation was personal information and was excluded from disclosure by the LDAA. The court also considered there was nothing about the transaction the seller’s principals were incapable of understanding. No breach of fiduciary duty was found, and the court dismissed that claim and the claim for breach of contract.

Of particular interest to REALTORS® may be the seller’s complaint about the ten per cent commission paid to the REALTOR®. The court held that, while a REALTOR® may have a duty to disclose an unusually high commission, the ten per cent commission was neither illegal nor unconscionable. The court found the seller had failed to carefully review the listing agreement clearly communicated to it, and the REALTOR® owed no duty to advise the seller on the reasonableness of his own fee.

When a seller introduces expert evidence as to the appropriate standard of care, a court may find liability on a REALTOR®’s part if the steps taken to value the property are considered insufficient in light of that evidence. In a rising market, when large sums of money can be involved, REALTORS® are well advised to take all available steps to investigate market value and to document those steps in writing.

 1. Summit Staging Ltd. v. 596373 B.C. Ltd./i>, 2008 BCSC 198.

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