Why Disclosure is necessary - REALTORS® have a duty to disclose defects

Basement flooding, cracks in the foundation, mould – what do sellers need to disclose and what do REALTORS^® need to find out? 

Real estate professionals have a duty to discover and disclose facts about a property that is being listed or shown to a buyer that could be relevant to a buyer’s decision to buy. As a REALTOR^®, your codes of ethics require you to discover facts pertaining to every property for which you accept an agency. The disclosure issue is covered in Article 4 of the CREA Code and Section 21 of the REBBA Code.

In a new OREA continuing education course called Defects and the Importance of Disclosure, author and course developer Mark Weisleder says all defects should be disclosed in advance. “I believe that REALTORS^® should show the SPIS (Seller Property Information Statement) to every potential buyer, especially if they are told in advance that there are defects in the property. If you disclose everything, then it is extremely unlikely that you or your seller will be sued by any buyer. If you do not disclose, there is always the possibility that proceedings will be brought against you as well as your seller client.”

Weisleder also says that if you are not sure whether the information is something you should disclose, simply ask yourself if it’s something you would want to know if you were buying the property yourself. “If the answer is yes, then you know you should be disclosing this information to the buyer.”

As a general rule, sellers of real estate and their listing agents have a duty to disclose any hidden (latent) defects that they are aware of in the property that could affect a reasonable buyer’s use and enjoyment and/or perceived value of the property.

Physical Defects - Patent and Latent Defects
There are two kinds of potential physical defects in a property -- patent defects and latent defects. A patent defect is a defect that is obvious when you walk into the home; for example a broken window. The buyer cannot complain about this defect because they can easily see it when viewing the home. They are thus governed by the legal doctrine of caveat emptor or buyer beware, and have to accept these defects on closing, unless they include a clause in their agreement that the seller will repair the defect.

A latent defect is a hidden defect, which cannot be observed on a normal inspection. The law is that if the seller knows about a latent defect that makes the home either uninhabitable by the buyer; unfit for the buyer’s intended purpose; or dangerous, then the seller must disclose this defect to the buyer. In addition, the seller cannot intentionally conceal what would otherwise be a patent defect. Examples of latent defects that should be disclosed include a problem with the foundation, or a very serious basement or roof water problem that has not been repaired.

“The Ontario Real Estate Association introduced the SPIS as a means for sellers to put buyers on notice of any physical problems with the property, to alert buyers and to provide buyers with the opportunity to make further inquiries when necessary,” says Weisleder. “It states right on the form that the form is not intended to be a warranty and the buyer must conduct their own independent investigation or property inspection.”

When completing the statement, the seller is asked to respond either “yes,” “no,” “unknown” or “not applicable” to questions such as “are you aware of any water problems” or “are you aware of any structural problems.” These statements have been completed by sellers for years in hundreds of thousands of real estate transactions across Canada, without any liability, especially when they completed the statement truthfully and to the best of their knowledge.

Yet there have also been cases where sellers who signed the statement were held liable for the buyer’s damages when problems were discovered after closing. In a review of these decisions, the judge determined on a factual basis that the seller either knew that what they were saying was false or had deliberately concealed a defect which was found out afterwards. “It was not the SPIS form that got the seller in trouble,” says Weisleder. “It was about not telling the truth when completing the form.”

Finally, Weisleder stresses, “Even if you or your seller are not required by law to disclose the information, the bar in terms of the level of professionalism required of REALTORS^® continues to move higher. By fulfilling your legal and ethical duties regarding the detection and disclosure of defects, you will insulate yourself and your clients from a lot of unnecessary pain and suffering.”

For more information about OREA’s Defects and the Importance of Disclosure online course visit http://www.orea.com/.

Housing market set to return to more normal levels of activity- RE/MAX Fall Market Report

Mississauga, ON (October 5, 2010) -- Residential real estate markets across Canada are set to return to more normal levels of activity after a brief summer pause, but most are unlikely to exceed robust sales posted in the final half of 2009, according to a report released today by RE/MAX.

Market for luxury homes remains brisk, in spite of soft summer

The RE/MAX Market Trends Report Fall 2010, highlighting trends and developments in 19 major centres, foundyear-to-date sales (January to August) ahead of 2009 levels in 11 markets (58 per cent). Prices were up yearover-year in all cities, with five experiencing double-digit gains in 2010 (Vancouver and St. John’s up 16 percent, Sudbury up 13 per cent, and Winnipeg and the Greater Toronto Area up 11 per cent). Balanced

conditions prevailed in most markets (79 per cent), with St. John’s, Kelowna, and Calgary declaring a firm

buyer’s market. By far the most interesting statistic reported was the significant upswing in upper-end sales in

both smaller and larger centres between January and August of this year, led by Sudbury at a 193 per cent

increase, Kelowna with a 163 per cent increase, Kitchener-Waterloo at 145 per cent, and Winnipeg at 104 percent. Last but not least, despite a lot of hype, the threat of higher interest rates, tighter lending policies and

summermonths.

“If anything demonstrates the underlying health of the national housing picture, it’s the surge in sales of luxury

properties this year,” says Michael Polzler, Executive Vice President, RE/MAX Ontario-Atlantic Canada. “We know from experience that this segment of the market is usually the first to show pressure cracks when a market is softening- that has certainly not been the case this year, even during the summer slowdown.”

Competition Settlement a Godsend

Finally, clearer heads have prevailed and a settlement has been reached between the Canadian Real Estate Association, the governing organization for Canadian Realtors, and the Canadian Competition Bureau. Let us put this to sleep once and for all!
Competition is a corner stone of the Canadian Real Estate Industry. Effective, competitive Realtors of all brands, unbranded and not real estate entities have made the number of options for consumers unlimited. Unfortunately many in the industry have been afraid of the impact of competition, or new competition, or perhaps a better choice of words is fair competition from new sources. We might even say fair competition from old sources.
For years other types of real estate entities from For Sale By Owner groups to outside web entities have caused the real estate industry to defend its right to exist within its own limited bounds. Legitimate rules of engagement were developed by the various real estate boards to limit what was a legitimate real estate entity, sales person or Brokerage. Ethical designs were written to ensure real estate professionals were following reasonable ethical principles for the better of the consumer and the community as a whole. These rules were designed by well meaning. professionals with much for thought.
When the Competition Bureau began to question these rules, turmoil resulted. Not from the industry, which continued to progress as usual with many business models focusing on different commission rates, industry practices and business models. The turmoil came from the general public, uncertain what the changes meant.
The turmoil came from the press which read all sorts of changes into the supposed lack of competition cited. Press articles ranged from "The Industry is Collapsing!" to the "Hounds are at the door!", to "The Sky is Falling!"
So, in my opinion what is the final result of this settlement between CREA and the Competition Bureau? Positive Change!. We have reached a settlement that should allow the continued competition between the established Realtor and other business models. Intelligent consumers will decide to select what ever business model, commission rate and service level they feel meets their needs. That is the way it was yesterday. And.....That is the way it will be tomorrow!
The difference tomorrow is that we now have a definitive decision for framework that the industry will work within for a period of time. At least the model is set. the detail will be sorted out but the model for the future is set. That certainty is good for all. The presses will stop printing the story of "Big Bad Real Estate" and "Bad, bad real estate people" who "over charge the consumer" for Services you do not need." The story will change to "Be careful what you ask for as some services you do not request may hurt your chances of success in the sale of your home." That is a good news story for all!
Some may not totally like what has resulted with the thought that there will be other business models that will attack the traditional way 90% of real estate has been sold to the consumer through the Multiple List Service MLS. They will state that commission rates will erode as these so called new business models will take away some or all of their business. I suggest this has already been the case a less aggressive real estate sales people and other real estate business models already have lower fees and less services. So what will be new as these services attempt to grow and attack the traditional Realtor? Nothing! Bad business models and unprofitable real estate people will continue to be loosing entities. Great successful Realtors with higher service levels and more profitable business models will always find a way for success. Their services are valued byu consumers and Canadian society. The real estate industry will emerge the better. Or at least until the next challenge!