Buyer Beware! – Toronto Realty Blog
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 AaronToronto StarApril 28th, 2021
Can a buyer terminate a transaction and get their deposit back if the published listing significantly overstates the size of a house?
A 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…
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