Let me start today off with a few different idoms, sayings, and rules of thumb…

“Buyer beware.”

“What they don’t know can’t hurt them.”

“If you have to ask if you should disclose, then you should disclose.”

“Disclose, disclose, disclose.”

I’ve obviously ordered these four phrases from least accommodating to most accommodating when it comes to disclosure, but suffice it to say, you can draw a line in between the first two and the second two.

Some people believe that it’s up to the buyer to inspect, search, and satisfy throughout the process of the purchase.

Others believe that a seller needs to disclose anything and everything to the buyer at the earliest opportunity.

The funny thing about this is: I’ve seen people act very differently when they’re on one side versus the other.

Of course, we see this all the time in real estate.  A person insists on getting a “deal” when they’re buying a house, but one week later, wants more than fair market value when selling their own property.

We call this “the shoe being on the other foot.”  People always seem to contradict themselves when they’re both buying and selling.

When it comes to disclosure in real estate, I feel that there’s a better balance.

Most prospective sellers are more afraid of not making a disclosure and encountering difficulty later on than making the disclosure to begin with.

But where things get tricky is: every lawyer will tell you something different!

In fact, the idiom, “If you have to ask if you should disclose, then you should disclose,” was offered to me by a lawyer, but was also laughed at by another lawyer when I told him.

So let me ask what might seem like a cynical question:

Does a lawyer offer, “If you have to ask if you should disclose, then you should disclose,” because he or she is a really good person, or because he or she knows that everything in law is a grey area, and the best way to avoid conflict down the line is to invite it at the onset?

Let me give you an example…

An individual has owned a home since 1982.

Last year, the property was treated for termites.

Do you disclose this?

Y/N

Most of you will say “yes,” and some will sneer and add, “Obviously,” but some lawyers will suggest that unless the property currently has termites, the treatment doesn’t need to be disclosed.

Alright, so what if the property was treated in 2022 for termites?

Do you disclose this?

Y/N

If you changed your vote, then why?  Is this about timing?

Because you know what I’m going to do next!

The owner purchased the property in 1982.  Back in 1989, the property was treated for termites.

Do you disclose this?

Y/N

And why?

Do you see how this entire situation is grey?  If you don’t think that the owner needs to disclose a termite treatment from 1989, but you do think they need to disclose a termite treatment from 2024, then aren’t you making yourself God here?

Who decides?

It’s a rhetorical question since there really is no definitive answer.  The courts decide, of course, but that takes time and every situation is different, with different arguments.

The above example wasn’t meant to be frustrating or inflammatory, but rather to highlight just how difficult a decision disclosure can be.

Then again, there are situations where the decision is easy and yet the participants screw it up.

Here’s a story…

A friend of mine from another brokerage knows this guy, who knows this girl, who heard about this situation.  See me trying to distance myself from this?  Perfect.

“Beverley” listed a luxury property for sale for $7.5 Million and, as many properties at this price point do, it sat on the market for quite a while.

It was eventually reduced in price, and then reduced again.  After six months on the market, it finally sold.

Firm.

Deposit in trust.

Then it’s just a matter of waiting until closing, right?

The sellers did not live in the home and were not even living in the country.  As a result, the property was vacant for quite some time, and when Beverley went to check up on the house, months after it had sold, but still months before the sale was scheduled to close, she walked in to find a scene out of Home Alone.

It was like the Wet Bandits had turned on all the taps, plugged the drains, and got in their blue van and drove away…

Beverley was aghast!

She was literally stepping into calf-deep water throughout the basement as she wandered around the mansion and tried to make sense of what had happened.

Beverley called the clients, in Europe, or on a yacht on the moon, or wherever they happened to be that day, and they said to Beverley, “Oh, man, not again…”

Again?

Yes, it seemed that this was not the first time that the basement had flooded.

But the sellers didn’t tell Beverley about the previous flood, which had happened five years earlier.

So the million-dollar question now becomes:

Did Beverley tell the buyers or their agent?

Did Beverley disclose?

In this particular case, the sellers told Beverley not to.

They told Beverley, “We’ll handle this,” and further told her that they would reach out when they needed her again.

It eventually turned out that over the next three weeks, the sellers frantically renovated the basement and made it look “as good as new,” as the saying goes.

But it wasn’t supposed to be new.  Was it?

In fact, they went out of their way to make the basement look exactly like it was before the flood, using the same building materials, and then moved all the existing furniture back into place.

Mens Rea, anybody?

Guilty mind, right?

In addition, when the buyers reached out to the listing brokerage to book one of their “buyer visitations,” the sellers told Beverley to explain that the house wasn’t available to show because one of their children was ill.  They used this excuse twice to pass the time while they renovated the house.

The sellers must have pulled some strings and called in some favours to get the renovation turned around that quickly, and in the end, they spent about $250,000.

That’s a pittance compared to value of the home though, right?

And what about the headache of having to sell it to a new buyer, all over again?

There are likely a lot of questions going through your mind right now, but here’s what should be the most important one:

Did Beverley disclose the flood and the renovation to the buyer or the buyer agent?

The answer is “no,” but this brings about an even more important question:

Was Beverley allowed to disclose the flood and the renovation to the buyer or the buyer agent?

I don’t believe that this question has a cut-and-dry “yes” or “no” answer.

In fact, I believe that the RECO Code of Ethics and the Trust In Real Estate Services Act would, collectively, contain multiple sections that contradict and confuse this situation.

Beverley can’t disclose anything without her seller-clients’ permission.

But if Beverley knew about this and didn’t say anything, then she could be sued, right?

I mean, anybody can be sued for anything, but what I mean to say is that Beverley could be liable.

At this point, you’re probably feeling sick about this situation, if not angry, so the good news is, the buyers eventually found out.

It wasn’t really that hard though, when you think about it.

For three weeks, the driveway to the house was filled with trucks!  Those trucks all had writing and logos on them!

Plumbing, flooring, and painting trucks, to say the least, but what about that “Basement Waterproofing” truck, not to mention one that mentions something to the effect of “Basement Water Restoration.”

A friend of the buyers happened to live in the area and was walking her dog, every single morning, watching a slew of trucks and tradespeople go in and out of the house.  Amazingly, she documented the entire thing!

The friend notified the buyers, who happened to live out west, and sent them photos of all the trucks and workers.

The buyers went straight to their lawyer, bypassing their own buyer agent and Beverley, and didn’t bother playing coy and asking, “Hey, anything you want to tell us?  Anything you want to disclose?”

The sellers, once they realized they were caught, played it off like they didn’t know it was an issue.

Their response was essentially, “Oh, yeah, we had some water in the basement but, don’t worry, we fixed it, and we’re ready for closing!”

As you can assume, this deal did not close.

The $500,000 deposit funds remained in trust as the sellers accused the buyers of breaching their contract, and the buyers accused the sellers of negligence and fraud.

Can both be true?

Here’s where we get into another “grey area,” as I call it.

As crazy as it might sound, many lawyers would argue that the only valid reason a buyer has in refusing to close the purchase of a house or condo is if there’s a problem with the title.

Anything and everything else, well, too bad, so sad.

Those were a lawyer’s words, not mine!  As I’ve told you on this blog, time and time again, the law expects a buyer to close on a purchase and then begin litigation thereafter.

As an example, and as we’ve discussed before, if a seller removed their WOLF range and SUB-ZERO appliances and replaced them with Frigidaire before closing, this is not grounds for the buyer to refuse to close.  The buyer is expected to close on schedule and then take the seller to small claims court (or not-so-small claims) later on.

As awful as this sounds, it’s the way it has to be.  Otherwise, buyers would refuse to close when there’s a “window crank” missing in the living room – there’s a battle I had recently that went on longer than it should have…

In any case, when it came to good ‘ole Beverley’s flooded mansion, the buyers did refuse to close, and the sellers did accuse them of breaching their contract.

In fact, the buyers’ own lawyer told them that they needed to close on the purchase and then use the information that they had acquired (ie. the dog walker’s photos, and the sellers’ own admission!) to sue after closing.

The sellers, of course, would have likely argued that the house was delivered in even better shape than when the buyers purchased it, since everything in the basement was new!

From what I understand, this sale did close, but I unfortunately do not have any information about the litigation.

But back to our friend Beverley…

Did she act unethically?

Should she have disclosed the basement flood and the “cover-up” that transpired thereafter?

Some of you will say “yes” because it simply seems like the right thing to do, whereas others will say “no” because there’s a confidentiality agreement in place between the sellers and Beverley.

As for whether or not the sellers should have disclosed this to the buyers, I think we can all agree that they should have, right?

Or not?

As crazy as it sounds, there are many who would, in fact, argue that the seller has the right to balance the concept of “right and wrong” with their disposition for being sued.  Then it could also be argued that the definition of what needs to be disclosed is super grey and a seemingly moving target.

Here’s one last example:

If you have hardwood flooring in your living and dining rooms, which is in great condition, but there’s a massive gouge in the floor in a spot underneath the area-rug, do you need to disclose this to buyers?

Some would say yes, and others would say no.

I would be in the latter camp.

I run into this all the time, and I always use the “slippery slope” argument.  If you have to disclose that massive gouge under the area-rug, then what about if it were a small gouge?  What if it were a scratch?  What’s the difference between a small, medium, and large scratch?

This is why the courts have always held caveat emptor: buyer beware.

Search the term and you’ll find all kinds of articles on the subject.  I know Bob Aaron has written a few.

Here’s one:

“How The Courts Have Shown It’s ‘Buyer Beware’ When Purchasing Property”
Toronto Star
January 2nd, 2020

Do you think that if Beverley had it to do all over again, and she knew what these sellers were like, she would have avoided the listing altogether?

I know that some of you are laughing at this.  You’ll suggest, “she doesn’t care, she got paid,” but maybe she felt trapped in a situation that she wasn’t comfortable with and simply wished she hadn’t taken on the listing.

I’ve had a few of these experiences before.

It’s a delicate balance.

On the one hand, the sellers are hiring you with the expectation of confidentiality and that you will work tirelessly to promote their interests and sell their home for top dollar.

On the other hand, the sellers could have major issues with a home that you’ve sussed out, and they’re demanding that you keep it quiet.

What would you do?

Let’s meet back here on Thursday, and I’ll tell you three stories from the past year where a prospective seller wanted me to act, in my opinion, unethically, and where I had a choice to make…

(TO BE CONTINUED…)