A Simple Half Million Dollar Oversight Image

A Simple Half Million Dollar Oversight


Five hundred thousand dollars. That’s the answer to the question of what is the largest indemnity ever paid by the Real Estate Insurance Exchange (REIX).

Twice in recent months, REIX has been faced with claims involving the sale/purchase of bare land condominiums; one of those resulted in that $500,000 payout. That claim proceeded as a result of a situation where a bare land condominium was misrepresented as a single family detached home. In this example, neither the seller’s agent nor the buyer’s agent had adequately reviewed the Certificate of Title.

In the second bare land condominium case, the seller’s real estate professional intentionally placed the property in the single family detached home section of the MLS® database to increase exposure for the property as bare land condominiums are often overlooked in favour of detached homes. Until the buyers met with their lawyer to sign documents, they were under the mistaken impression they had purchased a single family detached home.

A third recent case involved a quarter section of agricultural property that was intentionally placed in the country residential section of the MLS® database, once again, to “target” the most attractive market segment in an effort to increase exposure. The offer to purchase was written on a country residential document as opposed to an agricultural purchase contract and now there is a
claim at REIX regarding the payment of GST.

When REIX presented these scenarios at a broker luncheon last week at creb®, RECA was asked to comment on how it would approach such situations if faced with a complaint. RECA’s Professional Conduct Review team would initially focus on three elements of the Real Estate Act Rules: providing competent servicemisrepresentation; and obeying lawful instructions.

Whether you represent sellers or buyers, providing competent service includes reviewing with your clients a copy of title and any and all registrations attached. With sellers, this must occur prior to listing property. With buyers, it must occur prior to writing an offer. Another simple step in providing competent service is to ask the seller for a copy of any Real Property Report, and buyer’s agents should be reviewing that document with their clients. Using the most appropriate, current documents is also an element of providing competent service, as is trading only in the areas in which you have and maintain expertise.

Misrepresentation ranges from an unintentional mistake to deliberate or fraudulent misrepresentation. REIX advises that if there is deliberate misrepresentation, industry professionals will not be covered by the E & O insurance provided through REIX. Industry professionals cannot attempt to increase interest in a property by attempting to sell it as anything other than what it truly is. It would be like a chef trying to advertise his rump roast as a piece of prime rib. Misrepresentation only leads to dissatisfied consumers and a lack of confidence in the industry.

One of the seller clients in the cases detailed by REIX at last week’s presentation insisted on deliberate misrepresentation with respect to the property type. Remember that misrepresentation is not a lawful instruction, and real estate professionals are only required to obey lawful instructions.

Rationalizing misconduct by suggesting it works in a client’s best interest is not acceptable conduct for any real estate professional.

Do you believe there are other ‘common’ types of misrepresentation of which real estate professionals need to be aware?