Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
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Agent Fails to Conduct Proper Personal Inspection (RECO Discipline)

February 29, 2016 - Updated: February 29, 2016

 

Agent Fails to Conduct Proper Personal Inspection before SPIS

 

This particular case is quite difficult and challenging. It would seem to place a rather high standard upon the Listing Agent to KNOW the property. This was a case where the agent acted for both the Sellers and the Buyer.

 

The Listing

 

Dale Evans was a broker and broker of record with ABC Brokerage listed 123 Main Street, for the Sellers, Barney and Betty Rubble.

 

Multiple Representation

 

Evans acted for both the Sellers and the Buyer a numbered company. Both parties consent to this arrangement. A Confirmation of Cooperation and Representation indicated that there was duty of full disclosure to both the Numbered Company and the Sellers, including a duty to disclose all factual information regarding the Property.

 

The Seller Property Information Statement (SPIS)

 

Prior to execution of the Agreement of Purchase and Sale, Evans provided a Seller Property Information Statement (“SPIS”) to the principals of the Numbered Company that indicated there were no known problems with:

 

  • moisture or
  • water infiltration.

 

The Agreement of Purchase and Sale

 

The Agreement of Purchase and Sale, 20 April 2010 contained the following essential terms:

 

a) a purchase price of $105,000.00;

 

b) a deposit of $500.00;

 

c) a closing date of June 25, 2010;

 

d) the brokerage was the brokerage for both the Sellers and the Numbered Company;

 

e) the completion of the APS was conditional upon the Numbered Company  arranging suitable financing;

 

f) the completion of the APS was conditional upon inspection of the property by a third party and the obtaining of a report satisfactory to the Numbered Company at its own expense; and

 

g) the Numbered Company had the rights to inspect the property one additional time prior to closing.

 

The Inspection Condition

 

In order to secure financing, the Bank required an Inspection. Upon examination of the Inspection Company’s report, the Bank refused to advance funds for closing and, therefore, the Numbered Company was unable to complete the transaction.

 

The Home Inspection Report

 

The report concluded that:

 

a) That the foundation was “very vulnerable” to water leakage into the interior basement;

 

b) There were several significant foundation cracks that were visible at the exterior that extended below grade;

 

c) That the Sellers confirmed that there were no footing or weeping tile system around the exterior foundation;

 

d) That a portion of the Property had been actively leaking the previous year;

 

e) That chronic leakage occurring at the foundation cracks;

 

f) Chronic leakage at several areas where the concrete had spalled; and

 

g) That water collects under the basement floor and is forced up under pressure through cracks and joints into the basement, and the water cannot be drained away properly due to either a dysfunctional or nonexistent tiling system.

 

The Inspection Company’s report estimated the remedial work to cost in excess of $12,000.00.

 

The Default

 

The facts in this case do not indicate whether or not the inspection condition was used to terminate the transaction. Certainly, it would be rather disastrous if the inspection were waived, the Bank later came along and insisted that there be one. But, there’s no evidence of that being the case.

 

RECO DECISION

 

This is a copy of the RECO decision in this case.

 

It is agreed that Evans acted unprofessionally when she:

 

A. By not ensuring that the version of the SPIS that was provided to the principals of the Numbered Company was accurate, the Brokerage and Evans failed to act fairly, honestly and with integrity.

 

B. By not ensuring that the version of the SPIS that was provided to the principals of the Numbered Company was accurate, the Brokerage and Evans failed to promote and protect the best interests of the Numbered Company.

 

C. By not ensuring that the version of the SPIS that was provided to the principals of the Numbered Company was accurate, the Brokerage and Evans did not provide conscientious service to its client, the Numbered Company.

 

D. By not ensuring that the version of the SPIS that was provided to the principals of the Numbered Company was accurate, the Brokerage and Evans, in the course of a trade in real estate, engaged in an act or omission that, having regard to the circumstances that the property was subject to leaking, was unprofessional or dishonourable, or both.

 

It is agreed that Godfrey breached the following sections of the Code of Ethics:

 

FAIRNESS, HONESTY, ETC.

 

3. A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity.

 

BEST INTERESTS

 

4. A registrant shall promote and protect the best interests of the registrant`s clients.

 

CONSCIENTIOUS AND COMPETENT, ETC.

 

5. A registrant shall provide conscientious service to the registrant`s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services.

 

MATERIAL FACTS

 

21(1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client.

 

PENALTY

 

Evans was ordered to pay a penalty of $6,000.00 on or before December 5, 2014.

 

COMMENT

 

The problem with this case is that we don’t have all the facts. The Inspection Report is not good. But, the Offer contained a condition permitting a home inspection to take place.

 

It was arranged and it showed problems.

 

Without any additional facts, it would seem that the Listing Agent was to second guess the Sellers, inspect the premises personally and alert everyone before the home inspection took place.

 

If that were the case, then we would have no problems here. However, the Listing Agent got an SPIS signed. That was of benefit to the Buyer and that document was also falling into disuse in 2010.

 

Nevertheless, the matter proceeded with the expectation that there would be a home inspection report indicating the true status of the building. Let’s have a look at the detailed recommendations and in reviewing them, what would you have done:

 

a) That the foundation was “very vulnerable” to water leakage into the interior basement;

 

Is this something that the average agent would spot?

 

b) There were several significant foundation cracks that were visible at the exterior that extended below grade;

 

How visible and apparent might these be? And, wouldn’t these be signs that would suggest that a home inspection was warranted in the circumstances?

 

c) That the Sellers confirmed that there were no footing or weeping tile system around the exterior foundation;

 

It is difficult to know whether the Sellers’ confirmation was in the SPIS or followed questions submitted after the inspection. In any event, this information was available and was forthcoming.

 

d) That a portion of the Property had been actively leaking the previous year;

 

How visible was this? Maybe this was one of the reasons for the home inspection?

 

e) That chronic leakage occurring at the foundation cracks;

 

Would an agent be able to determine whether the leakage was “chronic”. Perhaps, this is an indicator that a home inspection should be conducted.

 

f) Chronic leakage at several areas where the concrete had spalled; and

 

This is similar to the above. Is the agent to know about concrete spalling? Is it not simply safe to say that the property has “issues” and therefore a home inspection is a “must”.

 

g) That water collects under the basement floor and is forced up under pressure through cracks and joints into the basement, and the water cannot be drained away properly due to either a dysfunctional or nonexistent tiling system.

 

I would not reasonably expect that an agent would know this.

 

The question reasonably speaking is to assess the proper role of the Listing Agent. Here we had Evans acting for both parties. There is a duty to investigate, determine and verify the material facts. There is a further duty to recommend the expertise of others. This would seem to be the case here.

 

It is not like the deal went through and this discovery was way too late. The deal did not go through. The penalty in this case was a stiff one, in the amount of $6,000.00, likely in excess of any commission to be charged.

 

At the outset, I would think that the agent appeared (from the reported case) to have acted reasonably. The trigger for the Panel’s decision seemed to be the failure to ensure that the SPIS was accurate. But, the accuracy of the SPIS was put to the test by have the home inspection.

 

Note: As a rule, I use fictitious names. The actual case is published on RECO’s website and is available to the public. For educational purposes, the names of the parties really don’t have any bearing. If you need to quote the case, you will have to obtain the proper legal citation.

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: founation water leakage agent fails to inspect spis reco discipline ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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