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Should the agent be responsible for giving bad advice to her client?

By
Home Inspector with Home Inspections 4U

A young, unmarried woman, who lives with her parents, decides to buy her own house.  Although the market is fairly soft, she cannot afford anything better than a small townhouse in a quiet neighborhood close to downtown Toronto.  Her agent shows her a townhouse in a good area that is about 100 years old and is listed for $399K.  The client likes the neighborhood, high ceilings on the main floor, nice size of the back yard (although the garage is almost falling apart and needs demolition), and decides to put an offer.  The agent tells her that all offers should be presented on a certain day as per listing.  The night before this day the woman meets her agent to prepare an offer.  The agent informs her that there are five more offers, and in order to buy the house she needs to remove ALL the conditions.  She also needs to put a good size deposit (20K) to show the vendor that she is serious about buying, and, finally, raise the price by 70 Grand.  The client, a first time buyer, is not sure if this is the best way to proceed, but the agent insists that this is the only way to get the house.  The buyer agrees to follow her advice.  She gets the house and applies for insurance.  The insurance company inquires about electricity, plumbing, structure, etc.  The young woman asks her relative, who is a home inspector, to prepare this information for her.  The home inspector inspects the house and finds knob-and-tube wiring throughout, leaky foundation and lead plumbing, asbestos, mold and in addition burnt rafters in the attic, which compromise the structural integrity of the roof.  These findings go to the insurance company, which refuses to give the buyer full house insurance until all the issues are corrected.  As a result, the lady cannot receive her mortgage and consequently cannot buy the house.  She cannot afford to do all necessary repairs either, since they mount up to 70-80 K.  She decided not to proceed with the transaction, and since she backs off from a firm deal she loses her deposit of 20K.

Should the agent share the responsibility and monetary burden with this young woman?  Even though she knows about "buyer beware," if everyone could make their decisions without using professional help, why would we need professional advice?

Linda Mae Croom
Topock, AZ
(928) 768-3040

Wow, I will be looking forward to the replies to your post. Here in Arizona as an agent I would never have made the recommendations this agent gave. $70,000 over asking price? No Home Inspection during the Inspection time frame? Especially on a 100 year old home ?? AND with $20,000 earnest money no protection for her Buyer? The agent should be hung by her toes in the town square in my opinion and if this happened here to me I'd be seeking restitution from the "agent". For Sure!

Aug 16, 2008 02:10 PM
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Yuri,

It is tricky. The agent not always or at all may be at fault, as she/he can only say what it would take to get the house, but the final decision is to be made by the buyer. This is not uncommon when you fight against multiple offers.

I guess there is a difference in the process  in Canada and in Florida, as here the issue with the insurance would pop up before the closing.

Как Вы там поживаете в Канаде. Мы были пару дней в Торонто, и нам понравилось.

Будьте здоровы!

Aug 16, 2008 02:17 PM
Mary Warren
Las Vegas, NV

That agent gave her an awful lot of advice and to me it sounds like he/she was pushing this first time home buyer into making an offer that was over her head.  Paying $469,000 for a first home sounds like a bit much, especially when it's not in good condition.  My feelings on this one is yes the agent should share in the loss. 

Aug 16, 2008 02:19 PM
Erik Hitzelberger
RE/MAX Alliance - Louisville REALTOR-Luxury Homes - Louisville, KY
Louisville - Middletown Real Estate

I don't know anything about your area so I can't comment on the price or downpayment.  However, advising the buyer to remove all contingencies and then make (what seems like) a substantial downpayment does not seem to be acting in their best interests 

Aug 16, 2008 02:25 PM
Yolanda Hoversten
Self Employed - O'Fallon, IL
Referrals for O’Fallon, IL & the Metro East

Hi, Yuri!  I don't know what the board contracts says, but in my area there's a financial contingency that states if buyer cannot get a loan, buyer can terminate contract and earnest money immediately returned.  It's probably called deposit over there, but I could be wrong.

One purpose of the inspection is to find out if there are issues that should be addressed before the closing.  Buyer then asks for repairs/mediation if there are serious defects.  Seller responds by agreeing to fix or not but that's part of the process.  Did she accept the condition of the house 'as is' as part of the contract?

It's true that as fiduciary, the agent should protect the buyer's interest, so if what you described is what happened, the agent might be responsible for some of the blame.  Has she asked for the earnest money back or has someone actually read the contract to see if there's a contingency that will let her out?

Wish her luck and keep us posted.

Aug 16, 2008 02:28 PM
Yuri Olhovsky
Home Inspections 4U - Toronto, ON
NHI, CMI, CEA, RASDT

Hi Yolanda, as I said ALL contingencies, including financing and home inspection were removed prior to submitting the offer. In another words the offer was made firm even before it went on the table. I have to add that the house was sold after the buyer backed off the deal for twenty thouzand dollars less. And yes she asked for the return of her deposit, but this request was denied. She even offered to split the deposit 50:50 and this was denied as well. She was told that she would be lucky to loose the deposit and not being sued for damages.

Aug 16, 2008 03:01 PM
Anonymous
Raymond Wand - Raymond Wand Home Inpsection Service - Caledon, O

While the agent has failed her client, the resolution to the matter can only be dealt with by taking court action to recoup the deposit by the purchaser suing the agent. After all the agent is insured (E&O) but the onus of proof is still on the purchaser, and only a court can now render a decision in this matter upon review of the facts.

The agent should also be reported to RECO, as the agent failed to act to a standard of care/practice established within the profession. It appears the purchase agreement was not drafted with a standard of care owed to the puchaser - fudiciary responsibility.

Also refer to this case law from - ONTARIO SUPERIOR COURT OF JUSTICE - DIVISIONAL COURT

Heard: March 14, 2006

http://www.canlii.org/en/on/onscdc/doc/2006/2006canlii10223/2006canlii10223.html

[9] In my view, there can be little doubt that the $10,000 paid by the Respondents in respect of the Agreement of Purchase and Sale was a deposit. The Agreement refers to the money as a deposit. There is nothing in the Agreement to suggest that the deposit is to be returned to the Respondents upon default. Unless an agreement indicates an intention that the deposit is not to be forfeited, the vendor has an implied right to retain it. The Agreement of Purchase and Sale was not completed by reason of the Respondents’ default and in such circumstances a true deposit is lost. See Morris v. Cam-Nest Developments Ltd. (reflex-logo) reflex, (1988), 64 O.R. (2d) 475 (Ont. H.C.J. ) at p. 491.

[13] The Courts will award relief from forfeiture of the purchaser’s deposit only where it is established that the sum is out of all proportion to the losses suffered and that it would be unconscionable for the vendor to retain the money. See Stockloser v. Johnson, [1954] 1 Q.B. 476. Where these requirements are not made out, the Courts will allow the forfeiture of the deposit without an inquiry into the extent of the vendor’s damages. See Craig v. Mohawk Metal Ltd. (1975), 61 D.L.R. (3d) 588 (Ont. H.C.J.).

[14] The onus is on the party seeking to invalidate a clause to show that it inflicts a penalty, rather than determines the damages payable by the guilty party. But even where a clause does inflict a penalty, it will not always be unenforceable where, for example, it is not unconscionable. See Fridman, The Law of Contracts in Canada, 4th ed. (Toronto: Carswell, 1999) at p. 817.

Aug 18, 2008 11:53 PM
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