Hire own expert when dealing with sales agents
May 24, 2007
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James Daw
Elsa needed expert advice before she put down $5,000 to buy a home. She never got it. So, she lost her deposit when she failed to qualify for a mortgage and her offer to purchase fell through.
The loss could have been avoided. Elsa places the blame on the seller's real estate agent for giving bad advice. She claims the women held out the false hope that someone with her low income and poor credit rating would qualify for a loan.
But saying it and proving it are another matter. Even if Elsa could persuade a judge the agent was overly optimistic about her chances, Toronto real estate lawyer Bob Aaron doubts it would get Elsa far.
"I don't think the agent has a fiduciary duty to a stranger," he said in an interview.
Elsa's story illustrates a few points important to all homebuyers, and to others who deal with sales agents for everything from cars to mutual funds. This is a buyer-beware world.
If you want someone to be on your side, look to someone other than a sales agent. You will not have an agent or adviser of your own until you have contracted with someone to act solely in your best interests.
"If you go to buy a car, the salesman is not going to tell you it gets lousy mileage," Aaron said. "He'll tell you how the mileage compares with other cars' fuel economy. He's not going to say you can't afford a car (or) that you won't be able to make the payments if you lose your job."
Competent adults are expected to take their own counsel, and to live up to contracts they sign. If you don't know how to protect your own interests when making a major purchase or investment, you need professional advice.
Thornhill real estate broker Alan Silverstein pointed out in his 1997 book Home-Buying Strategies for Resale Homes that homebuyers in Canada have since Jan. 1, 1995, been able to contract to have the undivided loyalty of a real estate agent other than the selling agent.
He urges us to contract with an agent to act as a purchaser's agent. The agent can help find a suitable home, arrange viewings and help with negotiations and present purchase offers.
"Once an agent has been selected, be candid and honest with him or her, and stick with the agent," Silverstein said. "Because the agent's job involves considerable legwork, for which no money is received until the transaction is closed, agents have the right to expect the same degree of loyalty from buyers as buyers expect from the agent."
So be careful to protect your representative's right to share in the sales commission. Do not attend open houses unaccompanied, and do not sign guest registers. Let your agent introduce you to the selling agent.
You are definitely going to need a lawyer to act on your behalf to close the deal. So make use of one before you submit an offer, Silverstein warns. You should also have a home inspector, and probably a mortgage broker to advise on financing.
Silverstein and Aaron point out there may be no charge to view an offer of purchase. Even if there is a charge, it could be money well spent.
Aaron said a lawyer could have protected Elsa by revising the standard offer of purchase form to say that her offer, and her deposit, would be conditional on obtaining financing.
An offer with such conditions might be rejected in a hot real estate market such as we still have in and around Toronto. It's better, though, for a low-income buyer to be turned away than to suffer a loss they cannot afford.
The selling agent did give Elsa the names of a lawyer and a mortgage broker. She could have consulted them before signing an offer. The mortgage broker could have obtained detailed information about her income, credit rating and eligibility for financing. The lawyer could have advised her on the purchase offer.
Elsa contends in a statement of claim submitted to small claims court that she told the selling agent she had only $17,000, and she did not have a good credit rating.
If she had consulted the lawyer and mortgage broker recommended by the agent, they would have had the obligation to represent her interests.
Instead, she is pursuing the agent's brokerage, which has replied that what she told the agent about herself was irrelevant. Elsa signed a legal contract, and a court has already ordered the brokerage to hand over her deposit to the owners of the condominium apartment she attempted to buy.
James Daw, CFP, appears Tuesday, Thursday and Saturday. He can be reached at Business, 1 Yonge St., Toronto M5E 1E6; at 416-945-8633; 416-865-3630 by fax; or by email at jdaw@thestar.ca.
Toronto Star