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Buyer Aborts Sale; Is Liable for Seller’s $100K Re-Sale Deficit Due to Market-Shift

The buyer, Cabral, failed to close on an agreement to buy the seller’s Hamilton home.  Although the seller re-sold the property to a new buyer only a month later, she sued Cabral for more than $100,000, being the difference between his offer and the price she ultimately received.   The court prefaced its judgment in the matter by stating this was “one of a number of cases that have come before this Court recently as a result of the overheated real estate market in the spring of 2017 that then fell off significantly and quickly during that summer.”

The original sale to Cabral was arranged after the seller put her home on the market for $399,900.  She set this price relying solely on the advice of her real estate agent, and did not have an appraisal done. Within six days she received 16 offers that far exceeded the listing price – including Cabral’s, which was the highest.  She accepted his offer of $551,000.

When Cabral failed to close at the end of July 2017 as scheduled, she immediately re-listed for the same $399,900, again on her agent’s advice.  Within six days, she received three new offers – all of them in the low- to mid-$400,000 range.  She accepted the highest bid of $450,000, with an August 10, 2017 closing.  According to evidence of experts, the large decline in the offer prices was due to a drastic drop in the Hamilton housing market immediately after July 12, 2017, when the provincial Fair Housing Act was passed.

The seller sued Cabral for the difference between his bid and the eventual selling price to the new buyer, which was over $100,000 including carrying costs.

Cabral conceded that he had breached the agreement, but complained he should not be liable for the price difference since the seller did not reasonably mitigate her damages. He claimed she should have obtained an appraisal and re-listed the property for at least 30 days, at a much higher price than the $399,900 originally used in the first round. She should also have waited longer than six days before accepting the highest bid to-date. Cabral claimed that had she done these things, as a matter of common sense she would have received offers that were better than $450,000, and likely much closer to the $551,000 he had agreed to pay.

After hearing evidence from experts on both sides, the court sided with the seller.  Despite conflicting evidence on whether a 30-day re-listing might have been appropriate, Cabral offered nothing to suggest that a longer period would have elicited a price higher than $450,000, much less something close to $551,000.  The only evidence tendered was that the new offers were all $450,000 or under, and Cabral admitted that he thought this was still higher than the true market value of the property in August of 2017.

This admission by Cabral was telling, and the court noted that he provided no expert evidence of the home’s market value at any of the relevant dates.  The reasonable conclusion was his $551,000 offer was an inflated price.  The experts for both sides were agreed that in the summer of 2017 the prices of homes in Hamilton reflected an overheated marketplace.

The court turned to the legal principles governing the calculation of the seller’s damages.  In a falling market, the general rule is that they are equal to the difference between the contract price and the highest price the seller obtained within a reasonable time after Cabral’s breach, after making immediate and reasonable efforts to re-sell.  The re-sale price was good evidence of the market price.

In this context, the seller had a duty to mitigate by obtaining the best price possible; it was up to Cabral to establish she had done otherwise.  The seller was only required to act reasonably, not perfectly, and was not obliged to take any and all possible steps to reduce her losses.

In these circumstances, the court concluded that the seller had acted reasonably in re-selling for $450,000 even though her home had been re-listed for only six days.  She was therefore entitled to be put in the same financial position as if the contract with Cabral had been performed. The court granted her summary judgment for damages of $100,000. See: Degner v. Cabral, 2019 ONSC 1610.