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
Toll Free: 1-888-507-0817

 

Search Blog

Search in:  
    
    
       

Sort by:

Brian Madigan's Annotated Version of RECO's Press Release on Grow-Op Disclosure

March 29, 2017 - Updated: March 29, 2017

Disclosure of Former Grow-Ops
 

I thought that it would be interesting to have a look at the recent Press Release from RECO on this matter.
 

First, you can read the Press Release in full, unedited as it was published.
 

Then, you can read my ANNOTATED version which follows. Same Press Release, just with my comments, notes, viewpoints and opinions throughout.
 

This is the Press Release:
 

By JOSEPH RICHER Registrar

Sat., March 25, 2017
 

Does my salesperson have to tell potential buyers that my home is a former grow-op?
 

There are two separate issues to deal with when you’re selling a former grow-op: physical damage and/or repairs to the property, and the potential emotional stigma as a result of the home’s past.
 

An important principle in real estate holds that buyers are responsible for figuring out whether the property they are purchasing is suitable for them, with the help of their broker or salesperson. To do this, buyers may ask for more information and conduct independent research.
 

Under that principle, you don’t have to disclose physical issues with the property that can be found through a typical home inspection. But if you know there’s a physical defect that would only be revealed with an invasive inspection, and the defect makes the home uninhabitable or dangerous to health and safety, you need to disclose it.
 

As with physical defects, you don’t have to disclose a potential stigma to a prospective buyer. But remember that a potential buyer will decide what’s important and instruct their representatives accordingly — and they may ask.
 

What is considered a stigma can vary from person to person. For example, was the home the site of a murder or suicide? Did a notorious criminal once reside in the home? The subject of stigmatized properties must be approached carefully.
 

Work with your agent to come up with a game plan to deal with any questions from a potential buyer or their representative.
 

Although your sales rep does not have to volunteer information about physical issues or stigmas, they can’t lie when they are asked about it. They can either answer the question directly, or decline to answer the question and suggest that the buyer’s representative conduct their own research.
 

All real-estate professionals have an obligation under the Code of Ethics to act with fairness, honesty and integrity when dealing with others in a real-estate transaction. It is also their duty to promote and protect your best interests.
 

Similarly, your sales rep must avoid misrepresentation or error when promoting your property. In dealing with an area of uncertainty about whether disclosure is advisable, their advice may be to disclose to avoid potential problems later on. It can be a difficult balance but make sure you have done what you can to make an informed decision.
 

There’s an additional wrinkle if your broker or salesperson is also representing any potential buyers (known as multiple representation). In this case, your representative has to take reasonable steps to discover and disclose to their buyer client anything that could reasonably affect their decision to buy.
 

As a seller, you are within your right to sell a property for as much as you can. If you are worried that this stigma may affect the sale of your home, consider seeking guidance from a lawyer.
 

And for all the buyers out there: before you make an offer on a property, make sure it suits your needs. Work with your real-estate professional to ask the right questions, and do your research.
 

Joseph Richer is registrar of the Real Estate Council of Ontario (RECO). He oversees and enforces all rules governing real-estate professionals in Ontario.
 

ANNOTATED Version

 

Italics and bolding and reformatting are my own.

 

By JOSEPH RICHER Registrar

Sat., March 25, 2017

 

Does my salesperson have to tell potential buyers that my home is a former grow-op?

 

There are two separate issues to deal with when you’re selling a former grow-op:

 

1) physical damage and/or repairs to the property, and

 

2) the potential emotional stigma as a result of the home’s past.

 

An important principle in real estate holds that buyers are responsible for figuring out whether the property they are purchasing is suitable for them, with the help of their broker or salesperson.

 

To do this, buyers may ask for more information and conduct independent research.

 

This is due diligence.

 

Under that principle, (sorry, no principle was mentioned)

 

you don’t have to disclose physical issues with the property that can be found through a typical home inspection.

 

This is true. This comment cuts to the chase on the distinction between latent and patent defects. This would be patent, and if it’s patent, no disclosure is required. There’s no need to point out the obvious.

 

But if you know (referring to the Seller) there’s a physical defect

 

1)    that would only be revealed with an invasive inspection, and

 

2)    the defect makes the home:

 

·        uninhabitable or

·        dangerous to health and safety,

you need to disclose it.

 

As with physical defects, you don’t have to disclose a potential stigma to a prospective buyer.

 

The point made above was that some physical defects would indeed have to be disclosed, so to say “as with physical defects… would be somewhat unfair.”

 

But remember that a potential buyer will decide what’s important and instruct their representatives accordingly — and they may ask.

 

This is true. The Buyer and the Buyer’s Agent will undertake their own due diligence to protect themselves.

 

What is considered a stigma can vary from person to person. For example, was the home the site of a murder or suicide? Did a notorious criminal once reside in the home? The subject of stigmatized properties must be approached carefully.

 

This may indeed be true, but there are also stigmas which have a profound effect upon valuation. Even if an informed Buyer were prepared to proceed, that Buyer would still want the “stigma discount” which could easily amount to 25% or more of the purchase price.

 

Work with your agent to come up with a game plan to deal with any questions from a potential buyer or their representative.

 

This “game plan” seems to be a reference to nothing more than “playing a game to allow the Buyer and the Buyer’s Agent to deceive themselves. This doesn’t really seem good or fair! Keep silent and permit the Buyer to deceive themselves. That’s the strategy. And, as you will probably appreciate, it would take a “game plan” to carry it out. This game plan is based in trickery and deceit.

 

Although your sales rep does not have to volunteer information about physical issues or stigmas, they can’t lie when they are asked about it. They can either answer the question directly, or decline to answer the question and suggest that the buyer’s representative conduct their own research.

 

This part is true. The Listing Agent should just keep quiet. Silence is golden. Don’t say anything. The moment you do, you are at risk. The material fact disclosure obligation is for Clients. That means the Listing Agent tells the Seller, but the Seller already knows (s.21.1). It’s up the Buyer’s Agent to “find out” (s.4) and then, tell the Buyer (their own Client). This is a little tougher because there’s no “heads up” from the Listing Agent.

 

I am surprised here that there wasn’t a reference to the potential trap in Derry v. Peek. That case illustrates the proper way to be legally deceptive.

 

All real-estate professionals have an obligation under the Code of Ethics to act with fairness, honesty and integrity when dealing with others in a real-estate transaction. It is also their duty to promote and protect your best interests.

 

Fairness and honesty is a public duty (s.3) and it is owed to everyone. So far, that obligation is subservient to s.4 the obligation to act in the Client’s best interest. It may be time to re-visit that section of the Code and for the sake of professionalism place the interests of the innocent Buyer above that of the trickster Seller.

 

Similarly, your sales rep must avoid misrepresentation or error when promoting your property.

 

The Listing Agent has to be very, very careful here or liability by way of a misrepresentation could occur by accident or oversight. So, obviously, make sure if you are the Listing Agent that your paperwork doesn’t come back to haunt you.

 

Actually, this is where most Listing Agents will fail in the system. They forget about the right to remain silent and they are sloppy with their paperwork.

 

In dealing with an area of uncertainty about whether disclosure is advisable, their advice may be to disclose to avoid potential problems later on. It can be a difficult balance but make sure you have done what you can to make an informed decision.

 

The reference to “their advice” refers to the Listing Agent. The reason that might be said is to “avoid problems later on”. If there were potentially problems later on, then this would seem to be “good advice”. On the contrary, the suspicion (because it is not said) is that this might not be the correct advice. The additional caution is to make an “informed decision” to either:

 

1)disclose, or

 

2)not disclose.

 

There’s an additional wrinkle if your broker or salesperson is also representing any potential buyers (known as multiple representation).

 

The reference to an “additional wrinkle” seems a little odd and cavalier for a formal press release made available to the public at large and 70,000 registrants to follow. I have used the expression myself in writing to an internet audience, but I am not writing on behalf of the Regulator.

 

In this situation we are dealing with multiple representation and its ancillary conflicts of interest.

 

In this case, your representative has to take reasonable steps to discover and disclose to their buyer client anything that could reasonably affect their decision to buy.

 

That’s quite a conflict. They know the problem and if they act for both sides then they have to disclose it. So, best route would be to fire them!

 

As a seller, you are within your right to sell a property for as much as you can. If you are worried that this stigma may affect the sale of your home, consider seeking guidance from a lawyer.

 

This seems a little strange here. This “guidance” which concerns RECO, should fall within the purview of the obligations of a registrant. It seems somewhat peculiar for the Regulator of the profession to be counselling the public to seek legal advice. Agents are supposed to know this. Clearly, RECO doesn’t think they do. Hence, this “press release” and vote of confidence in the legal profession.

 

If we are taking about selling “a property for as much as you can”, I’m not quite sure how the lawyer fits in. This falls within the matter of valuation of a property. I would look myself to an agent or appraiser. Getting legal advice about the value would seem silly, and most lawyers would be surprised.

 

And for all the buyers out there:

 

Strange, strange way of referring to prospective purchasers, but I guess it’s nice to have a “shout out”!

 

before you make an offer on a property, make sure it suits your needs. Work with your real-estate professional to ask the right questions, and do your research.

 

So, there’s a limited “heads up” in favour of agents. Work with them, but “make sure it suits your needs” and “do your research”. Really, this would seem to suggest that Buyers are on their own, and they should do their own due diligence rather than leave it up to their Agents. If the Regulator doesn’t trust them, why should the buying public? Interesting point!

 

COMMENT

 

As I have mentioned before, I find it rather peculiar that RECO engages in Press Releases of this nature. You don’t see this from the Regulators of other professions, lawyers, doctors, accountants etc. They leave the practice to the professionals and manage the regulation and registration of the membership.

 

It would indeed be fair enough if I took it upon myself to write this Press Release as a blog or an article. It would constitute my opinion. It would be “out there” but it would still just be “my opinion”.

 

Unfortunately, when RECO publishes this, it’s “gospel”.

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: disclosure former grow house reco press release
| | Share

Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

Powered by Lone Wolf Real Estate Technologies (CMS6)