Full price offer? Better not turn it down.

I think most sellers think they can turn down any offer they get, and that until they sign the deal, they’re not obligated. If they’re working with a realtor, though, they have to act reasonably, or they may find themselves on the hook for their agent’s commission even if they decide they don’t want to sell.

A recent Ontario court decision found that a realtor’s commission was owed even though the seller rejected a full price offer. The seller had been looking at another property,  apparently, and didn’t want to sell unless they could nail that purchase down.

We  run into that kind of situation fairly regularly, where our sellers have found their dream home and don’t want to sell unless they know for sure they can get it. We deal with it by inserting clauses and conditions in the listing and in response to any offers. We want to make sure that our clients don’t end up in a situation where they’re forced to sell before they’re ready to move. You’ll often see listings that say “subject to a specific property being available.” That’s what those clauses are all about.

Here, apparently, the seller wanted to buy a farm and when that didn’t happen, not only did he not take any steps to de-list his property, or terminate his listing agreement, but left it on the market. His realtor sent him a series of offers that came in, and got nasty responses, culminating in one for full price.

The realtor quite properly warned his client that the full price offer expired at midnight, and if he didn’t accept it, under the terms of the listing agreement, he’d be liable for commission. (The listing agreement makes the seller liable for commission if a sale doesn’t go through because of his default or lack of good faith.) He didn’t respond, and the realtor sued.

The Ontario Superior Court said that the seller hadn’t acted in good faith and that he was obliged to pay the commission even though he hadn’t actually sold the property.

If you don’t think that could happen, believe me it does. I have a colleague who listed a property and received a full price offer within a week. The seller decided the property must have been priced too low and turned it down. The buyer then made an offer above asking price, and the seller turned down too.

Months passed and no other offers came in. Eventually the listing expired and the seller got another agent, and ended up selling the property to that very first purchaser for less than what they’d offered before.

This ruling hadn’t been decided then, but my guess, after reading it, is that my colleague could have sued his client successfully the moment the seller decided to reject an offer that met the price he’d agreed to in the listing agreement.

We always worry as realtors that we may have priced a property too high or too low. We do the best we can do by looking at comparables and recent sales and adjusting for unique features. When the market responds quickly, it can mean the property was priced too low; it can also mean that the right buyer was ready to buy at the very right time. Either way, once the seller has agreed to the price and put out that listing, they can’t simply dismiss an offer that comes in at full price without facing consequences.

Seller Beware.

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