If You are "Related" Who Do You Tell?

By
Commercial Real Estate Agent with RE/MAX West Realty Inc., Brokerage (Toronto)

Theory of Relativity for Real Estate (Part 2: Who Do You Tell)

A question that pops up frequently in real estate is the matter of disclosure when a real estate agent acts for a relative.

Let’s consider a simple case. Bob is a real estate agent and he acts for his son Bill who is looking to buy a condo in downtown Toronto. Martha is a listing agent and has Mary’s condo available.

Bob works for ABC Brokerage and Mary is with XYZ Brokerage.

It’s important to note that Bob is not buying the condo with Bill. He is not loaning Bill any money. Bob is strictly acting as the real estate agent for Bill.

Is any kind of disclosure required here?

Who is a close Relative?

This is defined under the Code of Ethics (see Part 1). Bill as Bob’s son is close enough, so the disclosure must be made.

The Disclosure Obligation (The Law)

The rules are set out in the Code of Ethics as follows:

Disclosure of interest

18. (1) A registrant shall, at the earliest practicable opportunity and before any offer is made in respect of the acquisition or disposition of an interest in real estate, disclose in writing the following matters to every client represented by the registrant in respect of the acquisition or disposition:

1. Any property interest that the registrant has in the real estate.

2. Any property interest that a person related to the registrant has in the real estate, if the registrant knows or ought to know of the interest.

(2) A brokerage shall, at the earliest practicable opportunity and before any offer is made in respect of the acquisition or disposition of an interest in real estate, disclose in writing the matters referred to in paragraphs 1 and 2 of subsection (1) to every customer with whom the brokerage has entered into an agreement in respect of the acquisition or disposition.

(3) A broker or salesperson shall, at the earliest practicable opportunity and before any offer is made in respect of the acquisition or disposition of an interest in real estate, disclose in writing the matters referred to in paragraphs 1 and 2 of subsection (1) to every customer of the broker or salesperson with whom the brokerage that employs the broker or salesperson has entered into an agreement in respect of the acquisition or disposition.

Timing

If the agent has to tell, the timing is as follows:

1)    at the earliest practicable opportunity and

2)    before any offer is made.

So, that means as soon as possible. That’s the basic rule, but the latest time would be immediately before the offer.

How

The agent has to tell “in writing”.

What

The agent must disclose the following:

1. Any property interest that the registrant has in the real estate.

2. Any property interest that a person related to the registrant has in the real estate, if the registrant knows or ought to know of the interest.

In our example, Bob has no financial interest, but Bill does, and Bill is a “person related”, since he is Bob’s son.

To Whom

Who needs to know this information? Let’s look at the relevant sections of the Code of Ethics, which appears to be:

  1.      Clients, s. 18 (1),
  2.      Customers, s. 18 (2),
  3.      Other Clients and Customers of the Brokerage (multiple representation) s. 18 (3).

Application to the Facts

In the circumstance at hand, neither Martha nor Mary fall within the protected persons to whom disclosure is required. The reason is that Martha and Bob are with different Brokerages. However, if Martha was also with ABC Brokerage, then disclosure would be required to Mary.

Rationale

Most people really couldn’t care less. Everyone would reasonably assume that Bob would be doing a good job for Bill. Why wouldn’t he? After all, Bob is Bill’s agent and under the Code of Ethics we already know that Bob is acting in Bill’s best interests.

So, in this case, if Bob had the Listing, he must tell Mary, his client of his relationship with Bill. Mary might feel that Bob would favour Bill in the deal. This is over and above the multiple representation disclosure.

Further, if Bob just approached Mary about her unlisted condo and she was simply a customer, the disclosure must be made. Again, if Mary knew this fact she might feel that Bob would favour Bill in the deal.

One further disclosure is identified. Let’s assume that Fred with ABC Brokerage represents Barney and they too wish to submit an Offer on Mary’s condo. Now, we have a multiple representation situation for the Brokerage. Barney may feel that Bob would favour Bill in the deal, and that would place he and Fred at a slight disadvantage.

When in Doubt: Disclose, Disclose, Disclose

This is the prevailing mantra in the real estate business. Usually, it applies to a problem or defect in a property.

Really, it has no application here. The real estate agent should:

1)    Read the Act and the Regulations, and/or

2)    Ask someone who knows the answer.

It is rather cavalier, and somewhat “unprofessional” to verbalize the mantra while at the same time, failing to read the applicable law and failing to ask, still “professing” a higher level of “ethics”. No, it’s not higher ethics, it’s really simply ignorance of the rules and laziness by not inquiring.

However, here’s the real problem. When asked many registrants who are skilled professionals and often mentors to others, reasonably believe that the disclosure of interest obligation is much more expansive than it really is.

So, look it up, it’s easy enough!

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com

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Sandy Padula and Norm Padula, JD, GRI
Realty One Group - Carlsbad, CA
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Brian Madigan This is a common occurrence in the States and most if not all State Boards have specific disclosure rules regarding this situation.

Nov 23, 2016 04:35 AM #1
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Brian Madigan

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