Purchase offer should ask that the advertised square footage be warranted
What happens if you buy a house and it turns out to be more than 18 per cent smaller than the advertised size?
That's what happened in the summer of 2003 to Bruce and Karen Meagher after they bought a house in New Westminster, B.C., from Marlene Fraser.
It was advertised online by Ralph Telep of Tri-Tel Realty as having a total finished area of 2,706 square feet. The listing accurately set out the sizes of all of the rooms in the house, but the advertised total was approximately 500 square feet larger than its actual size.
The listing agent later admitted that the statement of the house size was negligently made by his office.
When the Meaghers were arranging mortgage financing, they discovered the shortfall in the total size.
Their purchase price was $340,000 but the house was appraised for mortgage purposes at $320,000.
Based on the appraisal and the discrepancy in size, the Meaghers sued the seller, and the listing agent and brokerage after closing for $20,000, representing the difference between the $340,000 purchase price and the $320,000 appraisal.
In court, Bruce Meagher testified that the real estate market was very hot at the time and that he and his wife were looking for a house in the range of $320,000 to $340,000. Their biggest priority, he said, was to find a house that they were happy in.
Meagher testified that the house met his requirements for location, privacy, number of bedrooms and bathrooms, room sizes and price range. He felt an urgency to put in an offer because homes like this were "selling like hotcakes" at the time.
Listing price for the Fraser house was $329,800, but on the advice of Meagher's own real estate agent, he offered $340,000 without any conditions.
Meagher acknowledged he was prepared to pay above the asking price in the listing agreement on the basis that it as a hot market and "that's what had to be done in order to secure a place."
Prior to making an offer on the house, Meagher said he did nothing else to assess its value except to view it.
The question that had to be decided by Justice John Truscott was whether the Meaghers were entitled to damages for negligent misrepresentation based on the fact that the house was advertised at 500 square feet larger than its actual size.
Unfortunately for the buyers, the judge decided against them.
"The plaintiffs here did not buy their house on the basis of so much per square foot," the judge wrote in his decision.
"They bought their house on an inspection and were prepared to pay $340,000 on the basis of their requirements and the realities of the marketplace."
Despite Meagher's evidence that the advertised house size was critical to his purchase decision, the judge decided that the buyers did not rely on the total square footage in making their offer.
"They relied on the location and appearance to them of the house, as Mr. Meagher viewed it," the judge noted.
"They are still satisfied with the house today as it meets their needs. Mr. Meagher was prepared to pay $10,000 over the list price of $329,800 because to him it had that value.
"It is only subsequently that he suggests the total square footage had any meaning to him. The room sizes themselves are correct and I do not find that the total square footage of the house was of any consequence to him at all."
There is an important lesson to be learned from this case by purchasers of houses or condominiums, whether resale or purchased from plans and to be built in future:
- Make it clear in the purchase offer that the stated size is warranted to be correct, or
- Insert a provision in the offer that the purchase price will be reduced in the event the size of the house or the land beneath it turns out, before or after closing, to be overstated.
Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp. Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly. E-mail bob@aaron.ca
April 6, 2009
Legal |