At a recent decision of a discipline panel of the Real Estate Council of Ontario (RECO) a Real Estate broker was charged with a breach of several sections of the RECO code of ethics because they failed to ensure the information given on a Seller Property Information Statement (SPIS) was accurate.
Even though a disclaimer on the forms attempts to shield real estate agents from responsibility for the accuracy of the seller’s answers, that disclaimer does not appear to be effective in light of RECO’s recent discipline decision, where the broker was fined $6,000.
The full hearing result can be read here
Some interesting things come out of this RECO hearing that affect not just the Realty profession, but the Home Inspection profession as well. First we need to identify the steps in the process and the ruling.
- the Realtor was “double-ending” the deal. That is they were working for the buyer and the seller at the same time.
- As part of the transaction, the broker provided an SPIS to the buyer which stated there were no known problems with moisture or water infiltration.
- The buyer relied on that representation in deciding to buy the property.
- The buyer had a home inspection revealed that the foundation had significant cracks and was very vulnerable to basement water leakage.
- The inspection company estimated the cost of repair at $12,000.
- The buyer’s bank would not advance funds in the face of the home inspection and the buyer was unable to complete the transaction.
- The buyer reported the Realtor to RECO and the broker was charged with breach of several sections of the RECO code of ethics.
- The broker admitted acting unprofessionally by failing to verify that the SPIS was accurate, and failing to promote and protect the best interests of the buyer, as well as admitting their conduct was unprofessional or dishonourable, or both.
- The RECO disciplinary panel ruled that the broker failed to treat their clients fairly, honestly and with integrity, and that the broker also failed to promote their clients best interests. More importantly from the Realtor/Inspector relationship, the panel found that the broker failed to exercise reasonable knowledge, skill, judgment and competence in providing services to her clients.
- In admitting that the broker had an obligation to verify the contents of the SPIS the broker allowed the panel to reason the agent’s obligation was to discover and disclose material facts relating to a property. Despite the disclaimer on the SPIS form that the agent is not responsible for its contents the Broker was still found in breach.
So first and foremost, it identifies that if an Agent has an SPIS form from a seller, then it is in the Agents own interest to ensure a Home Inspection is carried out. This shows that they have attempted to identify the information given on an SPIS form is accurate.
So what of the next possibility? An agent chooses, on seeing this case tells a seller not to fill in an SPIS. While this might go some way to protect the selling realtor form any failure to disclose, it does not protect the buyers agent from ensuring the buyers “best interest” were served if a Home Inspection is not carried out.
It also highlights the fact that should a Home Inspector choose to provide “soft reports” in order to get referrals from a Realtor, and a Realtor can be shown to favour a Home Inspector that is seen to give soft reports, the same liability could open itself. Having a Home Inspector give a “rose tinted glasses” view of a property will certainly land the inspector in court, but a prolonged association between a realtor and home inspector without the occasional “deal killer” of an inspection report could indicate complacency on the part of the Realtor as well.
In a situation where a buyers agent does not demand a SPIS and/or strongly recommend that their clients obtain a Home Inspection may also leave the Agent open to regulatory discipline.
The Ministry of Government and Consumers Services are responsible for regulating the Realtors profession through RECO and they are also looking to regulate the Home Inspection profession.
This is an indication that the new mandate for the MGCS may be having an early impact. The days of perceived conflict of interest between Realtors closely linked Home Inspectors may be numbered.
The whole issue restates something that should be understood implicitly but is sometimes forgotten in the heat of the stress of a Realty transaction:
- If you are a buyer or seller, it is important to ensure when selecting a Home Inspector you don’t opt for the first one your Realtor offers you. It is also important that you don’t choose the cheapest Home Inspector based upon the pricing your realtor suggests you should pay.
- If you are a Realtor, you want to ensure the Inspector you refer is one you can show has in the past provided an inspection or three that has identified concerns in a property that has maybe lost you a commission or two. This sends a clear message to your clients, and both professions that the days of conflict of interest, perceived or otherwise are now over.
- If you are an inspector and work in conjunction continually with one or more Realtors, the onus is also on you to prove their is no collusion or other undeclared interest between you. With litigation on the increase, if a client or their lawyer feels they can now make a case that a Realtor has been negligent in any way because of their relationship with you, it puts both you and the Realtor at risk from cross suits, and the findings from the Realtors regulator adds fuel to that fire.