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Professional Standards Manual

Notice of Change: Information in this manual changed when new agency and disclosure rules came into effect on June 15, 2018. Learn more about the new rules.Notice of Change: Information in this manual changed when new agency and disclosure rules came into effect on June 15, 2018. Learn more about the new rules.

Trading Services

2. Acting For Sellers

(m) ‘‘Stigmatized’’ Properties

When selecting a property to buy, most often the physical appearance of a property and the location will be obvious. If a buyer has concerns about the less obvious structural and mechanical aspects of a property, the buyer can have a property inspection done. However, consumers may have other areas of concern that would cause them to avoid a property. Certain events may cause a property to be described as a ‘‘stigmatized property’’, or a ‘‘ psychologically impacted property’’. These terms are sometimes applied to a property that has had some circumstance occur in or near it, but which does not specifically affect the appearance or function of the property itself.

Examples of these in a residential context might include:

1. a sexual offender is reported to live in the neighbourhood;

2. a former resident was suspected of being an organized crime gang member;

3. a death occurred in the property;

4. the property was robbed or vandalized; or

5. there are reports that the property is haunted.

The significance of these or any other occurrence can be affected by a person’s beliefs, values and perceptions, ethnic background, religion, gender, age, and other individual concerns. Therefore, to determine with any certainty all the possible circumstances that might cause a property to be considered ‘‘stigmatized’’ is daunting, if not impossible. Further, in the event of a lawsuit resulting from an undisclosed stigma, the buyer would have to prove what harmful effect the stigma had because these issues are often personal ones that do not affect the appearance, function or use of the property — the usual tests for determining a material latent defect.

While, under the doctrine of caveat emptor, buyers are ultimately responsible to satisfy themselves that the property they are acquiring is suitable for their purposes, many buyers look to the seller to provide them with information about the property. In British Columbia, it is important for consumers to know that while sellers and licensees representing sellers are required by law to disclose material latent defects affecting a property, they are not required by law to disclose the existence of possible stigmas that might be of concern to specific buyers. Therefore, British Columbia buyers, who are concerned about certain possible stigmas in regard to a property, are responsible to conduct their own investigation which could include inquiries of licensees who represent them or direct inquiries of the seller or licensees representing the seller.

When asked by their client, a buyer’s agent must make the appropriate inquiries.

When asked about the possible existence of stigmas that might affect the property the seller, or licensees representing the seller, may:

a) answer the question directly; or

b) decline to answer the question and advise the buyer to conduct their own investigation

Sellers and their licensees who choose to answer such questions are expected to use reasonable skill and care to ensure the accuracy and completeness of the information provided to buyers.

A refusal by the seller to answer questions may raise a warning flag for a prospective buyer who may then wish to find the answers through the buyer’s own independent research.

Stigmas Are Difficult To Define

The following example may help to show the difficulty in defining a stigma. Think about your response to this question:

Would it matter to you if a death had occurred in a property you were interested in buying?

Some would say ‘‘Yes, absolutely !’’ However, consider the following situations:

1. Would you find a death caused by a violent act or suicide unacceptable?

2. What if the family brought an elderly grandmother home to die in the comfort of her family and familiar surroundings?

3. Suppose it were a crib death of a newborn?

4. What if you learned the owner’s pet had recently died in the home? Would you feel differently if the death was natural or if poison was suspected?

5. Would you be concerned if a person had been killed by a car on the street in front of the house?

6. Would you be as concerned by a death that occurred 50 years ago as you would with a recent one?

These examples illustrate how difficult it is to clearly define what a ‘‘stigmatized’’ property might be. What one person might find unacceptable may be of little or no importance to another.

It is impossible to anticipate all the areas of sensitivity individuals may have. While the feelings and concerns of individual buyers are understandable, it is also easy to see that sellers might be unfairly hurt by a requirement to disclose such things. For instance, if the law required that all deaths in properties must be disclosed, regardless of how and when they occurred, the act of bringing a grandmother home to die may cause the owners to lose property value.

As noted earlier, sellers may refuse to answer questions about such potential stigmas, or, if they do answer, would be expected to use reasonable skill and care to ensure the accuracy and completeness of the information they provide. However, a seller may have no knowledge of events that occurred before their ownership, or the property may have been rented out and the seller may not know of events that occurred during the rental period.

Sellers and licensees acting on behalf of sellers who are concerned that some circumstance may cause the seller’s property to be considered stigmatized will face a dilemma — do we disclose and risk harming our property value, or do we not disclose and risk the buyer learning the information later and pursuing us for damages? Prudent licensees will discuss all the variables with the seller and should suggest obtaining independent legal advice as to the seller’s rights and obligations.

Keep in mind that the issues concerning stigmas affecting properties differ from the obligation of sellers and their representatives to disclose all known material latent defects about a property to potential buyers. A definition of the term ‘‘material latent defect’’, and the responsibility of a licensee acting on behalf of a seller to disclose a material latent defect, is contained in section 5-13 of the Rules.

Dual Agency

The disclosure obligations of a seller and listing brokerage change somewhat when the listing brokerage is, with the consent of the seller, acting as a dual agent. Despite the fact that a seller does not have an obligation at law to disclose the existence of a stigma that affects their property the seller has, when they consent to the listing brokerage acting as a dual agent, agreed that the brokerage will have a duty to disclose all matters material to the buyer except:

(i) that the seller is willing to accept a price or terms other than those contained in the listing;

(ii) the motivation of the seller to sell or lease; or

(iii) personal information about the seller.

Accordingly in a dual agency situation, where the buyer has made his or her concern about a stigma known to the brokerage through the licensee representing the buyer, and the brokerage, through the licensee representing the seller is aware of the existence of such a stigma the brokerage, as a dual agent, has a duty to disclose that information to the buyer. Where the brokerage does not have knowledge of the existence of the stigma and an inquiry is made by the buyer the seller may, as with other inquiries, choose to:

(i) answer the question directly; or

(ii) decline to answer the question and advise the buyer to conduct his or her own investigation.

The following two questions were received concerning stigmatized properties.

What is a seller’s (and seller’s agent’s) obligation to disclose a stigma if asked directly about it by a buyer or a buyer’s agent?

Unlike the obligation to disclose a material latent defect, a seller, and, therefore, a licensee representing that seller does not have an obligation to disclose the existence of stigmas which might affect the property. Therefore, if asked about the possible existence of stigmas, the seller, or licensees representing the seller, may:

a) answer the question directly; or

b) decline to answer the question and advise the buyer to conduct his or her own investigation.

Before responding to such a question on behalf of his or her seller, a licensee should first seek direction from the seller about whether to answer, or to decline to answer. Sellers and their licensees who choose to answer such questions are expected to use reasonable skill and care to ensure the accuracy and completeness of the information provided to buyers.

A refusal to answer questions may raise a warning flag for a prospective buyer who may then wish to find the answers through their own independent research.

Are the obligations different in dual agency?

Despite the fact that a seller does not have an obligation at law to disclose the existence of a stigma that affects their property, the seller has, when consenting to the listing brokerage acting as a dual agent, agreed that the brokerage will have a duty of disclosure to the buyer, excluding

a) that the seller is willing to accept a price or terms other than those contained in the listing;

b) the motivation of the seller to sell; or

c) personal information about the seller.

Under dual agency, the brokerage has a duty to disclose to the buyer all material information except that which has been excluded by the dual agency agreement with the consent of both the buyer and the seller. Accordingly, where the buyer has made his or her concern about a stigma known to the brokerage through the buyer’s representative, and the brokerage through the listing representative is aware of the existence of such a stigma, the brokerage has a duty to disclose that information to the buyer. Where the brokerage does not have knowledge of the existence of a stigma and an inquiry is made by the buyer, the options set out above related to the first question would apply.

[updated 06/15/2018]