October 19th - 2016

Disclosure and stigmatized properties

Stigmatized properties present a special challenge in real estate, and REALTORS® should be aware of their disclosure obligations.

Haunted house

Stigmatized properties present a special challenge in real estate, and REALTORS® should be aware of their disclosure obligations.

Haunted houseStigmatized properties present a special challenge in real estate, and REALTORS® should be aware of their obligations around disclosure.

When there has been an issue such as a death at a property, it’s important to understand your responsibilities around disclosure of that stigma. The industry regulator, the Real Estate Council of Ontario (RECO), provides guidance on the topic, while several experienced Ontario REALTORS® also weigh in.

“In the context of real estate,” notes RECO in a recent Registrar’s Bulletin on stigmatizing issues, “a ‘stigma’ is a non-physical, intangible attribute of a property that may elicit a psychological or emotional response on the part of a potential buyer.

RECO states that, unlike a latent or patent defect, “there is nothing physically observable or measurable associated with a stigma.” The Real Estate and Business Brokers Act, 2002, does not define stigma. However, the RECO Registrar’s Bulletin offers some examples of stigmas that may affect some buyer’s decisions to purchase:

  • the property was used in the ongoing commission of a crime (e.g., drug dealing, chop shop, brothel);
  • a murder or suicide occurred at the property;
  • the property was previously owned by a notorious individual (e.g., organized crime leader, known murderer);
  • there are reports that the property is haunted;
  • it housed a former grow-op which has been remediated, according to the local health or building authority.
  • Buyer’s representatives need to be as aware as possible of the buyer’s attitudes and concerns about a property, including their feelings about stigma, says RECO.  “When representing a buyer, it is the obligation of a registrant to use their best efforts to identify properties that meet the buyer’s criteria and to generally promote and protect the interests of the buyer.” 

    Stigma is partially a matter of perspective. One person’s stigma is another person’s opportunity, since a property’s value generally decreases if a stigma becomes common knowledge. 

    "Ask many questions of your buyer to determine if a particular stigma would bother them."

    “Every buyer is different. I once had a client who was looking at a property and he liked it but wanted to think about it overnight,” says Nancy Bloom, a Toronto REALTOR® and instructor at the Ontario Real Estate Association (OREA). “Meanwhile, I found out that the owner had been shot and killed in his car while driving on the street in a contract killing. When I shared these facts with my buyer the next day, he wasn’t bothered at all. His reaction was, ‘I’m getting a deal’.”

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    To some people, however, the murder would make the thought of buying such a property too grisly and disturbing. Stigma may be a personal aversion or a cultural sensitivity, but either way, the client’s views should not be dismissed as unimportant, says Anthony Allen, a Newmarket REALTOR® with 27 years’ experience and an OREA instructor. 

    “For example, a lot of people won’t live beside a graveyard,” Allen says. “By disclosing the presence of a graveyard to the buyer, you are respecting their attitude or culture. If you fail to disclose something that will offend your buyers’ sensitivities, you may end up losing them as a client.” 

    Both REALTORS® advise you to ask many questions of your buyers in order to ascertain whether they have particular sensitivities. Bloom notes that stigma is “not about you – it’s about what matters to the buyer.” The onus is on the REALTOR® to ask the buyer about what might bother them. It’s important to ask these questions, especially in a multicultural region with people of different cultures and religions. Something that doesn’t bother me might well be an issue for someone else.”

    Disclosure obligations differ, depending on whether the REALTOR® represents the buyer or the seller. RECO takes something of a “buyer beware” approach to the issue of disclosure and stigmas, and notes that the representative for the seller has no legal requirement to disclose a stigma; in that case, it’s up to the buyer and their representative to find out.

    As the RECO Registrar’s Bulletin notes, if there are material latent defects on a property the seller is required to disclose those defects. The seller’s representatives are also required to disclose material latent defects if they are aware of those defects. 

    Stigmas are different from defects, however. The Bulletin states that “there is no legislation or case law in Ontario to suggest that a seller, or his or her representative, is required to disclose the existence of stigmas to buyers. Registrants representing sellers should advise their clients to seek legal advice if they believe that stigmatizing issues may become a factor in selling the property.”

    However, to avoid problems for the seller in the future, REALTORS® are advised to have a discussion with their seller about stigmatizing issues and disclosure. Even though it may be that the seller and seller's representative have no legal obligation to disclose a stigma, the safest and most prudent route may be to disclose it in order to prevent problems with the transaction in the future. 

    OREA takes the position that, “when in doubt, disclose.” REALTORS® are held to a higher standard than the general public and have an ethical obligation to disclose, says Cassandra Agnew Walker, the senior manager, standard forms. “Real estate professionals must follow a code of ethics that a member of the public who is selling their house doesn’t. When in doubt, we suggest that OREA members disclose a stigma because it is better to be safe than sorry. If a REALTOR® doesn’t disclose a stigma, there may be a lawsuit or a complaint to RECO afterwards. Disclosure is a way to prevent that argument and hassle later on.” 

    Haunted houseIf you are a buyer representative, you must disclose the existence of a stigma to your buyer. If you are a listing or seller representative, there may be no legal obligation to disclose. However, lawyer Merv Burgard, author of Legal Beat and Legal Forum and a former OREA instructor, notes that there may be a moral obligation. Burgard notes that although sellers and builders are not bound by the code, REALTORS® are. “My simple advice is: when in doubt, disclose.”

    Some brokerages create their own clause to protect buyers by asking the sellers to sign an acknowledgement that, to the best of the sellers’ knowledge, there are no psychological (stigmatizing) issues with the property.  

    “Some seller reps disclose directly on the listing a stigma such as the existence of a former marijuana grow-op,” adds Bloom. “If they don’t disclose it directly on the listing, they may add some wording to the listing that suggests that the buyers contact the listing brokerage before submitting an offer. This alerts the buyer rep that they may want to dig deeper.”  

    As a REALTOR®, failure to disclose a stigma can have serious consequences, adds Agnew Walker. “If you don’t disclose a stigma, do you care about the loss of business in the future? Do you care about your reputation as a REALTOR®? If you do, it’s best to disclose, and OREA encourages our members to discover and disclose anything that would affect a reasonable person’s decision to purchase real estate.” 

    The buyers’ representatives must disclose anything they know about a property – all the material facts, says Allen. “Some REALTORS® may be afraid the deal will fall apart if they disclose a stigma, but you must give the buyers a chance to get out,” he says. “You can’t personalize it by arguing that the same issue wouldn’t bother you.”

    Allen says that all REALTORS® who represent a buyer must disclose to the buyer any unnatural or sudden death that has occurred on a property, no matter how long ago, such as a child drowning in a pool. “If the stigma is universally known to affect the property’s value, you must disclose it,” he says. 

    A natural death at a property, such as a senior dying in bed at home, may not bother some buyers, but it may disturb others. In either instance, he says, it is best to ask your buyers in advance: Would it bother you if a death has occurred in the home? 

    Allen does not often come across properties that have been the site of murders, suicides or sightings of ghosts. In his Newmarket office, the most common stigma involves a property’s location near a graveyard. He always discloses the proximity of a graveyard to buyers interested in a property that is near one. If you fail to disclose something that will offend your buyers’ sensitivities, you could expose yourself and your brokerage to a code of ethics infraction or be found not to have fulfilled your fiduciary duties. You may also end up losing that buyer as a client.

    "It’s a good idea to research the history of a property on the MLS® and elsewhere to uncover a stigma."

    Bloom recalls an example she heard from a REALTOR® a few years ago. “The property was being sold after the woman who owned it had passed away. The registrant asked her son whether the woman had died on the property, and the son said no, she had died in the hospital. However, the buyer later discovered that the woman’s husband had previously died in the house. In that case, the questioning wasn’t thorough enough.”

    That was a good lesson about just how thorough a buyer’s representative should be in asking questions, Bloom notes. “That buyer wanted to make sure that no-one had ever died in the house, and in that case, the question was too narrow. The buyer and their REALTOR® should have asked not just whether the owner had died in the house, but whether anyone had died in the house, since this mattered to the buyer.”    

    “As REALTORS®, you must be careful and thorough because it’s easy to miss something, even if you think you are doing everything you are supposed to do,” she notes. With the advent of the internet and Google searches, consumers now have easy access to much more information about a property. If a buyer’s representative doesn’t disclose stigma information, that buyer could complain to RECO or file a lawsuit.” 

    It's a good idea to research the history of a property on the MLS®, whether you are representing the buyer or seller, Bloom adds. A REALTOR® would also be well advised to look up properties and do a Google search of an address to determine whether a stigma may exist. An address can also be searched on a website called housecreep.ca to determine whether that website has information about a stigma associated with a specific property.   

    Bloom adds that, “If I was working with the seller of a property where there’s a stigma such as a murder committed there, I would advise that seller to speak to a lawyer and to follow their lawyer’s advice.

    “Some buyers include a clause in the contract stating that there are no psychological issues with the property,” she adds. “If the sellers are hiding something, that can come back at them and be a problem later on.”

    After listing a house, Bloom often knocks on neighbour’s doors in that area to let them know that she is listing a nearby house, which is both a prospecting opportunity and a chance to learn more about the listed address. “Not all sellers will tell their REALTOR® about a stigmatizing issue that has occurred on a property, but the neighbours will often fill you in. This is very useful information for us that can prevent problems later on.”  

    A 1999 discussion about stigmas and the disclosure obligations of REALTORS® can be seen in the Legal Materials section of the OREA website. The participants are two lawyers, Merv Burgard, author of OREA’s Legal Beat column, and Lou Radomsky, legal counsel to OREA’s standard forms committee. For more on stigmas and disclosure, see the September 1999 article, “Things that go bump in the night”, and the January 2011 Legal Beat column, “Disclose the fact that suicide took place.”

    As well, see the accompanying article on “stigmatizing issues” in the Registrar’s Bulletin, reproduced with permission from RECO.

    Editorial Policy: The REALTOR® EDGE newsletter is produced 11 times a year by the Ontario Real Estate Association. The newsletter aims to provide practical and useful news and information about the real estate industry to members of the association. The opinions expressed in the newsletter are not necessarily those of the publisher. The newsletter welcomes submissions from the real estate community, including letters to the editor, opinion pieces, events and news. The newsletter reserves the right to edit, based on space restrictions and/or suitability, and/or to refuse submitted material for inclusion in the newsletter without reason. All rights reserved. Reproduction in whole or in part without the express written permission of the publisher, OREA, is prohibited. Contents are copyright of the Ontario Real Estate Association.

    Editor: Mary Ann Gratton

    Contributors to this issue: Elaine Smith, Merv Burgard, Mary Ann Gratton

    Web Editor: Shade Lapite

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