Listing Agent’s Duties When Confronted with a Defect
So, what does the Listing agent do when a defect shows up? This is something, of course, that they didn’t know about at the outset. It may have been concealed, it might not have been apparent, it might have been covered up. In any event, the Listing Agent has a listing, which is an agency appointment and this “new fact” becomes known.
What does the Agent do?
The choices appear to be:
1) Keep it quiet,
2) Tell the Seller,
3) Tell the Buyer,
4) Tell Everyone.
Keep it Quiet
Is this a realistic option?
The Code of Ethics states:
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.
The real estate professional indeed has a client. The Listing Agreement is an agency appointment. The task is the disposition of that real estate. The duty imposed here is to take “reasonable steps” to determine the material facts. In its expanded explanation, it is a duty to “investigate, determine and verify” the material facts.
So far, so good. Everyone knew that part.
Now, what do you do with that information?
The balance of the duty deals with DISCLOSURE. The obligation imposed is to disclose those facts to the CLIENT. That means the Seller; NOT the Buyer, not everyone, the SELLER.
Tell the Seller
That seems to be exactly what s. 21 (1) of the Code of Ethics is saying.
It should also be noted that the agent needs to report back to the Seller in terms of the activities and the steps taken:
Steps taken by registrant
23. A registrant shall inform a client of all significant steps that the registrant takes in the course of representing the client.
Accordingly, just keeping it quiet is not really an option.
Tell the Buyer
The information that was acquired was obtained in an agency relationship. One of those duties is “confidentiality”. In fact, it becomes the Seller’s information. It is for the Seller to share it with others. The judgment call in these cases depends upon the Seller’s discretion.
Separate and distinct from the Seller’s specific instructions to “keep this information quiet”, is the issue of whether or not there is an independent duty to advise the Buyer. Is there such a duty?
Assume in this case, that the Buyer submitted an Offer which is in the conditional stage or even that there are no conditions whatsoever in the Agreement.
Let’s look at 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.
37. (1) A registrant shall not knowingly make an inaccurate representation in respect of a trade in real estate.
Error, misrepresentation, fraud, etc.
38. A registrant shall use the registrant’s best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.
Unprofessional conduct, etc.
39. A registrant shall not, in the course of trading in real estate, engage in any act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant.
Those are the duties that are imposed. These are designed to offer some degree of protection to the Buyer. These are also the sections which frequently give rise to disciplinary sanctions. Mostly, it would be client directed, but that’s not what the sections say.
In addition, there may be an obligation to advise or breach a confidence should someone’s life be in danger or a person placed at risk of serious bodily harm. These disclosures are authorized under the Criminal Code.
A good example here would be a major Health Care facility in Toronto which recently released private and confidential information about a nurse who admitted to killing 8 patients. This admission was given to the police. It is noteworthy that the nurse was in fact still working, meaning that the lives of other patients were placed at risk. The safety of those patients trump privacy and confidentiality.
Now, we come back to the conflict. The Seller wants the fact kept secret, the Agent wants to tell, so that there is no subsequent issue under the Code of Ethics.
Assuming that we don’t have the “Criminal Code Trump Card” here, what about something a little more minor? Obviously, there are a whole range of potential facts.
Most of the time, disclosure of sensitive information can be restrained and offered simply to those who express an interest in the proposed acquisition.
Full disclosure upfront would be loading the information onto the public portion of the MLS and noting it in any brochures and marketing information.
However, not everyone needs everything all upfront. Perhaps, the “Brokers only” section of the MLS might work or alternatively a note to the effect: “call Listing Agent before making offer”. Either of these two options might be sufficient.
The Proposed Resolution
How does the Agent resolve the secrecy conflict?
Seek permission and authorization from the Seller to disclose or walk away from the Listing.
That’s the tough part. Nobody wants to do that. But, why run the risk of being sued by someone else later, or even if you are not sued, it would be on your conscience forever. So, walk away!
The intention is to open the discussion on issues of some significance. It is noteworthy that no actual fact situation has been discussed. There are many, and each could be different leading to a different conclusion.
The law which is applicable here is the same, no matter what the actual facts might be. It’s the application of the law to each set of facts which troublesome and interesting!
Brian Madigan LL.B., Broker