Buyer Who Walks Is On Hook For Price Drop

You think you’ve sold your house. You have a signed agreement (and a deposit). But then the market turns, the value of your home starts to drop, and the buyer doesn’t go through with the purchase. What compensation can you get? That’s the question the sellers brought to court in a recent case.

The buyer had agreed to pay $1,260,000 for a rancher on a large property in Surrey. The purchase contract was signed in May, 2016 (near the height of the Lower Mainland real estate frenzy), likely on the standard form normally used for such residential transactions.
There were no subject conditions in the contract, and the buyer put up a $60,000 deposit. The sale was scheduled to be completed on September 1, 2016. But the buyer simply walked away and did not complete the transaction.

The sellers had bought a replacement property to move into. They sued the buyer for breach of contract and, when the defendant buyer didn’t respond, they got default judgment in their favour. They were awarded the deposit, and additional damages (compensation due to them) to be assessed later. So this court hearing dealt with the full amount of compensation due to the sellers.

The purchase contract effectively said that if the buyer defaulted and didn’t go through with the purchase, the sellers could get the deposit toward compensation and could also look to the buyer for any additional losses they suffered over and above that.

The court heard evidence that, after the contract was signed and especially when the B.C. 15% foreign buyer’s tax came into effect in August, 2016, the real estate market changed and softened. In order to try and mitigate (reduce) their loss, the sellers proactively re-listed their house for sale in mid-September, 2016 at $1,149,000. This was the reduced price recommended by their agent, who actively marketed the property on MLS and otherwise from then on. But it took some five months and several more price reductions before the property was finally resold in February, 2017 for $910,000.

The guiding rule as to the amount of compensation for such a breach of contract is to put the sellers in the same position they would have been in if the contract had been carried out, said the court. So here, walking away from the deal without a valid excuse meant the buyer was on the hook for some $350,000 for the drop in market value from $1,260,000 to $910,000. In addition, the sellers were awarded consequential damages (reimbursement for extra costs they had to pay until the house was resold), such as mortgage interest, property taxes, insurance, gas and hydro for the house, which came to over $10,000.

Bottom line: If a buyer doesn’t go through with a binding house purchase contract in a falling market, they may well be on the hook for the drop in value (when the seller afterwards resells for less) plus other expenses the seller incurred because of the breach.

Written by Janice and George Mucalov, LL.B.s with contribution by COBBETT & COTTON. This column provides information only and must not be relied on for legal advice. Please contact COBBETT & COTTON for legal advice concerning your particular case. Names of the parties in reported cases have been changed or removed to protect their identity. Lawyer Janice Mucalov is an award-winning legal writer. “You and the Law” is a registered trade-mark. ©Janice and George Mucalov.

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