Seller beware: Real estate agencies can collect their fee even if a buyer defaults on a sale, B.C. man learns
Professional standards expert says it's legal but rare for brokerage to demand commission in failed sale
Three years ago, a man who'd signed a contract to buy Mike Armstrong's rustic cabins on B.C.'s Lake Errock suddenly dropped off the map. The closing date came and went, but the buyer stopped responding to any messages from his real estate agent.
Defaulting on the agreement of purchase and sale meant the buyer forfeited a total of $70,000 in deposits to Armstrong.
Armstrong says he and his wife hoped to relist the two properties with the same brokerage. Instead, they were served last spring with a lawsuit, demanding commission of $70,875 plus interest for the aborted sale.
He was shocked.
"It was just strange. You hire a Realtor to sell your property — it seems like that's their purpose in life — and we couldn't understand where it was coming from," Armstrong told CBC News.
He didn't understand why he would be on the hook for commission when the deal failed through no fault of his own.
But after a long and frustrating search for answers through every organization and government body that deals with the real estate industry in B.C., Armstrong discovered the standard listing contract he'd signed says a real estate agent only needs a legally enforceable contract of sale to pursue commission.
"Every single person now that's listed on MLS and Realtor.ca … has the same form they've signed, so every one of them could be sued by their Realtor," Armstrong said.
The details of what happened in Armstrong's case are laid out in a civil claim filed by Century 21 Seaside Realty in White Rock, as well as Armstrong's response to that claim and a response from his real estate agent, Fabian Saul, to a third-party notice.
These documents show the Armstrongs had signed a limited dual agency agreement to allow the brokerage to represent both the buyer and the seller in this deal.
In August of 2017, buyer Michael Tran, acting on behalf of a company called Vans Intrust Investments, entered into an agreement of purchase and sale to buy Armstrong's two cabins on a quiet lake east of Mission.
The contract had to be extended once, but the eventual deal was to pay $1.35 million with a closing date in July 2018.
But when that date arrived, the buyer was nowhere to be found, court documents say.
'Generally speaking, we don't sue sellers'
In his search for a clear answer on his legal responsibilities, Armstrong reached out to Paul Cowhig, an experienced real estate agent who was then professional standards adviser for the Fraser Valley Real Estate Board.
Cowhig told him it was extremely unusual for an agency to go after a seller for commission after a deal falls through.
"In my 40-plus years' [experience], I don't know of it ever happening. I know there's case law … but it's few and far between," he said.
"Generally speaking, we don't sue sellers. We just sell the house to someone else."
Cowhig said real estate agents have a professional obligation to fully explain every term in the listing agreement to their clients, but it's also up to the client to pay attention.
He also said that it's hard to generalize about how or why a case like this might end up in court without knowing what went on between the parties.
"Real estate is a public relations thing. It's a relationship type of thing. Suing someone is a pretty good way to burn your bridges," he said.
Fabian Saul, Armstrong's real estate agent, told CBC News that because the listing agreement was with the brokerage, they're the ones who made the decision to ask for the commission.
Saul said he'd never been in a situation where a buyer has backed out of a deal after all the contracts are signed and the deposits paid, but the listing agreement is clear.
"Once you have a contract that is fully signed and a deposit is entered, then what you have is a fully legally binding contract," Saul said.
"The Realtor has already earned his commission and the realty firm representing the seller, it has the ability to claim for that money."
Representatives of the brokerage did not respond to requests for comment on the lawsuit, but their notice of claim says they have satisfied their side of the deal.
"Fortuitously, the Armstrongs have been paid deposit monies of $70,000, nearly enough to pay the commission. It would be unjust in these circumstances were Century 21 Seaside to be sent away empty-handed, while the Armstrongs pocket the fruit of the Realtors' labours," it says.
A date has yet to be set for the lawsuit to be heard in court. The Armstrongs are arguing that one of the conditions on the purchase agreement was not met, so it is not a legally enforceable contract, a claim that the brokerage denies.
Standard form 'could easily be changed'
Cowhig points out that not all provinces have similar terms about commission in their standard listing agreements — for example, Nova Scotia does not, he said.
Armstrong would like to see the B.C. Real Estate Association (BCREA) change its standard forms so other sellers don't find themselves in his shoes.
"It could easily be changed," he said.
The BCREA says it develops its contracts in collaboration with lawyers, B.C.'s industry regulator and consumer representatives.
"It's imperative that anyone entering into a contract fully understand all the terms," a spokesperson said in an email.
In the meantime, Armstrong has relisted one of the cabins with a different firm, after asking them to sign a contract saying they wouldn't sue him for commission if a buyer defaults on a sale.
"They were happy to put it in writing," he said.