Can a sale be guaranteed?


It sounds like quite the coincidence, but my roommate from law school also ended up practising in real estate – albeit in a much larger firm in Toronto. I got an email from Mahira a little while ago with a link to a case she thought I would find interesting, and I’ve been wanting to share it. With the new year starting, I thought it was a good time to talk about a very fascinating (to me, at least) subject: the Guaranteed Sales Agreement.

Some realtors will sign agreements with you that if your house doesn’t sell, they will agree to purchase it from you before the end of a set time period. You should always be quite careful when signing these types of agreements though, and have them properly reviewed by your lawyer to ensure that you are happy with all of the terms. This case is a good illustration of that.

David and Tanya Idzan were selling a condo in Edmonton. They listed it with Jack Broadfoot, and explained to him that they were selling because they had bought a new build house. They signed an agreement that stated that the property was to be sold no earlier than January 2008, as their new home would not be ready until then. At the same time that they signed the listing agreement, Jack had them sign a Guaranteed Sales Agreement that listed the proposed purchaser as Fountainhead Financial Inc. The GSA included, among other things, that Fountainhead could elect to either have the existing mortgage discharged or could assume the mortgage; the price would be $225,000, as opposed to the $254,000 that it was initially listed at.

The condo had not sold by early 2008, at which time the Edmonton real estate market had fallen significantly. After several price reductions, the Idzans decided that they would be better off selling to Fountainhead under the GSA than continuing to reduce the price of the condo. However, when the closing was about to occur, Fountainhead’s lawyer indicated that they wanted to assume the mortgage – which was not allowed by the Idzans’ lender. The condo eventually sold for $185,000.

As it turned out, the Idzans had explained to their realtor that their mortgage was not assumable. They would have to pay it out on closing of their condo in order to comply with their lender’s requirements. The realtor had overlooked this and included this term in the GSA. Because of this inconsistency, the court found that the realtor had been negligent and awarded the Idzans $25,000 in damages. Essentially, the realtor had included a term in the GSA that was impossible for the vendors to fulfill from day one.

You can read the entire case, Idzan v. Broadfoot, here.