Greater Toronto's crazy hot real estate market puts licensed realtors in a precarious position. Multiple offers 20 to 30 per cent over list price are paired with record low interest rates and COVID-driven savings. Cash-rich and home hungry investors and home buyers are chasing limited new home and resale inventory.
You know it's a wild market out there on the GTA's multiple listing service. Watch out that it doesn't come back to bite you legally.
Legal 101: Realtor Multiple Listing Service Madness
As a RECO member, you can fall back on your Section 8 professional code of ethics for guidance:
- Referring buyers and sellers to specialized services for expertise that exceeds your own.
- Encouraging clients and customers to look further afield for answers when queries or requests are "not in your wheelhouse" or unlawful for you to give advice on.
What does Section 8 mean for realtors? Clearly, if you lack the knowledge, skill, judgment or competence to offer an opinion, refrain from counselling clients or customers. How does that compromise you?
Let's look at some examples.
Your client seems sincere. He reassures you he has pre-approved mortgage financing for a major home purchase. Besides, he qualifies for first-time buyer incentives, so he says.
He jumps the gun on the home bidding war with a generous bully offer. That puts his bid 15% over the property's appraised value, leaving the buyer exposed if prices take a dive later. You explain that, but your buyer insists.
Going on his information alone, you ink the agreement of purchase and sale without a subject-to financing clause. You submit it to the enthused seller. They accept. Who wouldn't in this overheated market?
All appears fine until the real estate closing nears, when you discover the client has been turned down by multiple lenders and a respected mortgage broker. They're house rich and cash poor -- his Scarborough bungalow is still on the market. As it turns out, the brick walk-up townhouse you're marketing is not his first spin around the block. What's more, Mr. Overconfident started a small business a few months ago, after getting mortgage pre-approval.
It's a charming two-storey Tudor on a peaceful, tree-lined street. The seller produces a recent home inspection report. It gives the 40-year-old SFD a clean bill of health. Feeling lulled into a false sense of security?
Looks like smooth sailing for the buyers. They can save some hard-earned coin on requesting an independent home inspection report and close the deal sooner. They ask you to give the report a quick glance over, which you do. Seems okay, but hey! you're no lawyer or home contractor.
Only problem is, the home inspector is the seller's cousin Larry. Thousands in repairs later, you lose the buyers' confidence (and repeat business). The buyers lose precious savings. Cousin Larry gets called up for conflict of interest by OAHI.
Ontario introduced home inspection regulations in 2017. Fair enough. That requires inspectors to be licensed and insured, but it doesn't protect against every unscrupulous business dealing.
You get two frantic phone calls in a row from hyper warehouse supply chain agents. They've spotted that prime Hamilton vacant industrial property you've just added to the commercial real estate multiple listing service. They insist on an immediate tour.
Before you can put a pending sale sticker on your multiple listing service commercial property ad, calls and emails fill your voice mail and inbox. It's a bona fide bidding war. The seller's delighted. You're his go-to realtor now.
But wait up. The property was previously used to store 10-gallon drums of suspiciously noxious used petroleum products. Your seller refused to fill in a seller property information statement and fudged when you asked why the drums are still sitting there.
Your "sure-thing" property's hot in more ways than one. What to do now?
How Could This Be Avoided?
Good question. Unreasonable and unfair as it may be, buyers expect realtors like you to be knowledgeable in areas you may have no experience in at all.
More Confidence Than Cash
Mr. Overconfident, for example, turns out to have more chutzpah than assets. Chalk it up to experience. The overheated bid was bound to fail once a mortgage lender got involved.
Subject-tos protect sellers, buyers and your brokerage house. Besides their obvious purpose -- preventing unviable real estate deals from going forward -- they fix your business reputation as a consummate real estate professional keeping buyers from treading in shark-infested waters.
Axess Law's Advice
Insist buyers get independent legal advice on their agreement of purchase and sale. Axess Law's experienced real estate attorneys can help cool misplaced ardour. It’s $349.99 well spent.
The Errant Home Inspector
Then there's Cousin Larry. Showing a realtor a home inspection report is like being handed a red herring. Not only are home inspections not most realtors' forte, you may not be up on the latest court decisions. Trust your lawyer to research that for you.
If the home inspection report seems vague, pay particular attention to the "exclusion of home inspectors' liability" clause. That's the part that restricts home inspector liability in case major faults are found after the real estate transaction is completed. While home inspectors may hope to limit their liability to refunding what they were paid to conduct an inspection, Canadian courts take a different view.
Nova Scotia Supreme Court ruled in 2021 that ambiguous or unclear exclusion clauses in home inspection agreements are void (Smith v Asaff, 2021 NSCC 16). That decision goes back to a 2009 visual "once over" home inspection that failed to expose serious structural problems.
Frowning on the reliance on such limited responsibility for what amounted to over $600,000 in repairs, the ruling cites an earlier 2003 decision (Brownjohn v Ramsay, 2003 BCPC 2 2003). As that judge explained:
“...the average consumer of a home inspection service would be very surprised to be told in clear and understandable language that the inspector can be incompetent or reckless, or incompetent and reckless, and express any opinion he likes regarding major structural aspects of the house, and have no responsibility to the client beyond the fee.”
Axess Law's Take
Home inspection exclusion clauses are standard practice. Courts are after due diligence. You could be drawn in if a buyer argues you could and should have realized the home inspection contract seemed light on details. Advise buyers to bring their home inspection report and agreement of purchase and sale to Axess Law’s Greater Toronto Area law offices for a thorough review.
Hiding in Plain Sight
What about those leaky gas storage tanks in the too hot to handle industrial warehouse space? They're what Ontario law calls a latent defect or hidden damage.
The SPIS that failed to disclose the leaks places a buyer at considerable risk of expensive remediation after the sale closes. Reasonable inspection and ordinary vigilance may not turn up the leaks or the truth about their source. Since the seller knew about the defect before he put the property on a multiple listing service in Canada, the buyer has a potential claim for any losses or damages the buyer incurs for site remediation.
Depending on the circumstances, realtors and brokerages can owe a duty to buyers to point out misrepresentations or an incomplete SPIS. You wouldn't want to have to explain that to the court.
Axess Law's Quick Assessment:
Latent defect disputes make for costly and drawn out lawsuits. Get a SPIS. If it is incomplete or the seller's answers vague, have the site inspected before you market it.
Licensed Real Estate Peers
Axess Law's professional real estate lawyers are peers you can trust to send clients and customers to. We charge affordable flat rate fees to buy or sell real estate, from $799.99 for sellers to $999.99 and up for buyers. Our multiple Toronto law offices are open for business, day or evening, with long hours for everyone's convenience.
Refer your customers and clients to our toll-free 1-877-402-4277 online booking service or in Greater Toronto, call our 1-647-479-0118 lawyer line. We make bookings easy and can video conference anywhere in Ontario