Question:
Interesting dilemma. I had a seller that signed listing paperwork. We did a pre-list inspection that showed 100% moisture in his basement. He didn’t want me to disclose. I told him to please find another agent and he did.
One month later I have buyers and we went to see the house which is now on the market and they want to do an offer. Of course, my fiduciary duty is to them…but am I allowed to tell them what I know about the house? Originally, I paid for the inspection but the seller paid me back when we parted ways.
Answer:
It is an interesting ethical issue, however you have to remember that you obtained this information “in confidence” when you were acting on behalf of the Seller, and under fiduciary duties. Let’s have a look that them:
Disclosure: you have to tell the Seller.
Obedience: you have to follow the Seller’s instructions. They said “no”, that means “NO”.
Competence: you must act in the Seller’s best interests.
Confidentiality: information which you obtained is for the Seller only.
Accounting: not applicable.
Loyalty: that means you are guided by the Seller’s interests.
Following termination “Confidentiality will still continue”
Pre-Listing Inspection
Perhaps you should have second thoughts about the pre-listing inspection, particularly after TRESA.
You obtained some information and it backfired.
If it’s a latent defect, then the Seller has a legal obligation to disclose. If you tell them, then, they will KNOW. If they know, then under the common law they basically have a choice: 1) disclose, or 2) face the consequences of non-disclosure.
Sellers are obligated to disclose “material, latent defects”. However, if something can be found easily by a professional home inspector, then, it’s not latent.
New Disclosures under TRESA
This is the relevant provision under TRESA:
Disclosure of facts by seller’s broker or salesperson
22.2 (1) If a seller has a legal obligation to disclose a fact to the buyer and the fact is known to the broker or salesperson who represents the seller, the broker or salesperson shall disclose the fact to every buyer who expresses an interest in the real estate.
This legislation came into force on 1 December 2023.
Here, we need:
- Knowledge by the Seller
- Knowledge by the Buyer
- Material, latent defect
In this particular case, it would appear that the information falls short of the Seller’s obligation to disclose at common law, and therefore this information does not trigger the agent’s obligation to tell the whole world under TRESA.
Material Fact Disclosure
An agent is under a duty to investigate, determine and verify the material facts and disclose such facts to their own client. In this case, the Buyer.
But, in reality, you only have this information “in confidence”. So, it’s still “secret” and you have been told: “not to tell”.
The legislation has been augmented slightly under TRESA:
Material facts
22.1 (1) A broker or salesperson who represents a client in respect of the acquisition or disposition of a particular interest in real estate shall,
(a) take reasonable steps to determine the material facts relating to the acquisition or disposition;
(b) disclose the material facts to the client as soon as possible after the determination; and
(c) advise the client to consider whether the material facts affect their decision to acquire or dispose of the interest.
(2) The broker or salesperson shall make best efforts to obtain a written acknowledgement from the client indicating that the disclosure and advice mentioned in subsection (1) has been received and, if the client makes the acknowledgement, provide them with a copy of it.
(underlining mine)
The “consideration” and the “paperwork” are new under TRESA.
In this situation, you discovered a patent defect which does not require disclosure either by the Seller or the Listing agent.
Conflict of Interest
As the new Buyer’s agent, having terminated the prior Listing, you now have a new role to act in the Buyer’s best interests.
The challenge is “how can you do that without breaching your legal obligations to maintain the Seller’s secret”? That’s going to be difficult.
Your “new” client needs to discover this information, absolutely, for sure! It’s relevant, it’s material, BUT, you can’t tell them what you know.
Assuming, you proceed:
- The Buyer finds out. The Seller will claim that you breached their confidence and report you to RECO for disciplinary issues, or sue you in Court for the deficiency in the purchase price and other damages.
- The Buyer does not find out. They sue the Seller and the Seller says that you knew all along. The Buyer then sues you for not guiding them properly through this transaction and also contacts RECO to initiate the discipline process.
The difficulty here is that neither situation works out well.
Solution: Referral to a Colleague
The best solution would be to refer this Buyer out to a colleague who will look after them well, obtain a home inspection and negotiate a resolution in the interests of the Buyer.
Anytime such a conflict arises in law or medicine, the lawyers and doctors refer it to a trusted colleague. This should be the same in real estate.
Brian Madigan LL.B., Broker