Seller's Duty to Mitigate After Failed Deal: Examined

In Gamoff v. Hu, the court considered facts that it said "tragically demonstrates" how a family overextended themselves in a "hot" real estate market while trying to finance the purchase of their dream home.  The case is also interesting legally, because it highlights the nature of a seller's duty to mitigate damages in the face of a buyer's breach.

The sellers had listed the property for $2 million, prompting 18 showings and three offers to purchase, one of which was from the buyers for $2,050,000.  Despite insisting they did not want to engage in a bidding war, the buyers upped their offer to $2,250,000, which the sellers accepted. They promptly tendered a $30,000 deposit, and began negotiating about the timing for another $90,000 still to be submitted. 

Soon after, the buyers reconsidered. They told the agent they had paid too much, but in truth they had learned they could not obtain the necessary financing. But since their offer was not conditional on financing, they were not entitled to simply back out. So, they simply failed to pay the additional $90,000 deposit, and advised the sellers that they could not proceed. They asked them to either re-list the property, or to reach out to one of the two other parties who had put in offers earlier.

The sellers did re-list a few months later, at the price of $2,250,000.  But by this time the market had begun to cool, and they received no offers. They dropped the price to $1,998,000, and later to $1,798,000.  Ultimately, they accepted an offer of $1,770,000, and sued the buyers for the difference between that figure and $2,250,000, which the buyers had originally agreed to pay.

Among the issues for the court was the scope of the sellers' duty to mitigate, and the precise point in time when that duty arose.  From the buyers' standpoint, the timing of that duty was especially important, since the real estate market had begun its decline around the time they advised the sellers that their financing had fallen through. The buyers claimed the sellers could have immediately re-listed, or reached out to those who had tendered earlier, higher offers, thus minimizing their damages.  The buyers also complained that if they had re-listed at $2 million (rather than the original $2,250,000) they could have attracted other offers immediately.

The sellers, in contrast, sought summary judgment for what they said was the buyer's straightforward breach and resulting liability in damages, for the difference between what they offered and what the property eventually sold for.

The court considered these facts, pointing out that it was the buyers' onus to show the sellers had been unreasonable.  Absent evidence to the contrary, it was wholly appropriate for the sellers to re-list the property at $2,250,000 in what was still a "hot" market. The court noted they had re-listed shortly after learning the buyers could not obtain financing, and dropped the price periodically to try to generate offers. Expert evidence also showed that a comparable property was listed and sold within six days for a similar price. 

Although it could certainly speculate, the court said it was "in no different position than a trial court would be in terms of crystal ball gazing" as to whether or not the sellers' conduct was reasonable.  It had to assess what was fair in this scenario. Here, the court was more than satisfied that the sellers had acted reasonably in re-listing the property in the manner they did. 

In the end — and while the court expressed "every sympathy" for the buyers — there was no genuine issue requiring a trial.  The sellers were entitled to their damages based on the difference between the contracted-for sale price, and the ultimate sale price of $1,780,000.  The court also  cautioned that with its changing nature, the real estate market might see more buyers overextending themselves in the face of a decline, and recommended that offers be made conditional on financing, and on the sale of any existing home they may have.  See: Gamoff v. Hu, 2018 OSCJ 59,281