How far do real estate professionals have to go?
| June 14, 2014
An Ontario court recently found a real estate agent partly liable for damages for failing to review a home inspection report with his buyer client. The court concluded that the agent’s duty did not end with the recommendation that the buyer obtain a home inspection and that the agent fell below the standard of care by failing to review the home inspection report with his client before she waived the home inspection condition.
The details of the case were as follows:
- A first time home buyer attended two showings of a property with her real estate agent.
- She made an offer on the property that included a home inspection condition.
- The home inspector discovered a significant danger in the house – relating to the furnace – and the buyer’s agent convinced the seller through the seller’s agent that the furnace had to be replaced before closing. This demand was formalized in an amendment to the agreement.
- The buyer had an express concern about mould. No mould was observed on the date of inspection.
- The amendment pertaining to the furnace replacement was agreed to and signed by the parties and the home inspection condition was waived. The transaction closed on May 1, 2006.
- By July 2006, moisture, mould and mildew had presented problems for the allergic buyer. She began to take pictures that demonstrated the presence of mould, rot, rust, drywall deterioration and efflorescence, and tried to determine the cause.
- She complained to her agent, lifted the carpet and sub floor, had the home inspector re-attend, provided a detailed report to the broker of record, lodged a complaint with the Real Estate Council of Ontario, and consulted legal counsel.
- There were water events (drain back-ups, slow draining toilet, etc.) in the home in 2005 and 2006, though there is no evidence of a significant event between March and July 2006 when the problems became apparent to the buyer.
- The judge found that those water events failed to persuade him that they were the cause of the now severe water damage.
- A civil engineer testified as to the cause of the condition of the buyer’s home and concluded that the house’s foundation was not damp-proofed, and that the moisture in the basement was caused by water penetration through the foundation walls, which was permitted by a lack of surface drainage away from the exterior walls.
- As there was no triggering event to explain the sudden and relentless increase in the damage, the expert concluded that the seller was most likely aware of the basement moisture issues. His view was that the amount of deterioration he observed was from more than a year.
- The buyer testified that on the date of the inspection in March 2006, the conditions were similar to that which was demonstrated in her photos taken between July and November 2006.
- The buyer’s agent, the home inspector and the seller testified that those conditions were not in place on the date of the home inspection in March 2006.
- The judge found that he was unable to conclude the home inspector completed a thorough inspection based on his own evidence.
- The buyer testified that during the home inspection she was taken through parts of the house and the home inspector pointed out some concerns.
- By the time they got to the basement, the primary concern was the dangerous furnace. While with the buyer, the home inspector did not conduct a thorough investigation for signs of water penetration.
- No one reported a damp carpet when visiting the property, and the buyer, her agent and the home inspector all have serious mould allergies. No one had any reaction during or following the inspection, so the court concluded that there was nothing apparent on March 12, 2006, during the inspection to indicate water penetration had been occurring.
- The expert testified that mould, rust, rot, related to a moisture problem can develop quickly, but there was no evidence before the court with respect to how, when and where problems will develop.
- The seller and his family lived in the basement for 5.5 years and conducted no renovations to the basement that would suggest they were addressing a moisture problem.
- The court found that the seller was not aware of moisture difficulties nor should he have been, which ended the claim and cross-claims against the seller.
- The buyer would not have waived the home inspection condition and purchase the home if mould had been discovered during the inspection.
- The evidence at trial demonstrated that the home inspector is a skilled building inspector, and he repeatedly emphasized there was no mould inspection, but that the buyer was given time to read and ask questions about the limited scope of the inspection.
- The court concluded the home inspector’s documentation which limited the scope of the inspection was not adequately brought to the buyer’s attention. The court found the document that contained the written limitations was not presented for the buyer’s reading and signature until after the inspection walk-through and the buyer’s attention was never brought to the issues of limitation whatsoever.
- The buyer was clear in her reliance on her real estate agent and on the home inspector to tell her the problems, and she expressed her concerns about mould to both men.
- The home inspector handing the buyer a thick document of limiting terms and conditions was insufficient communication of contractual expectations.
- Despite recommending the home inspector used, the buyer’s real estate agent did not explain nor did the home inspector bother to find out if he could meet the buyer’s contractual purposes.
- During the home inspection, both the agent and the home inspector uttered reassurances relating to moisture, and the agent enthused about the dry home, and the court found that the buyer had a reasonable expectation that the home inspection had determined there were no concerns about moisture penetration.
- On the date of the inspection, there was visible damage to the parging on the exterior wall at the driveway. The home inspector noted it as a major defect, but did not include it in his summary of major defects.
- The driveway was missing an 18-inch swath of asphalt along the exterior wall of the house.
- The buyer did not read the complete home inspection report.
- The inspector and agent, together, purported to explain his findings to the buyer during the inspection.
- The buyer reasonably understood that the driveway parging was not urgent.
- There was no explanation of the potential significance of driveway parging. The breakdown of parging is significant as a sign of what may be occurring in the foundation wall below grade, and the court found that it was highly relevant to the potential for moisture penetration.
- The home inspector testified that he writes what he says and vice versa. The important components of his written report are items on which he added narrative. He wrote in the report about the various concerns expressed in absolute terms: the leaning pillar, the knob and tube wiring, the faulty plumbing trap in the upstairs bathroom and the parging along the driveway as well as the driveway itself.
- The court found the commentary provided to the buyer orally was quite different. Except for the furnace, the home inspector conveyed no sense of urgency.
- The supervising broker, the real estate agent and the home inspector knew that the driveway and parging as described in the home inspection report could indicate water penetration problems. The buyer did not know that and the significance of the condition of the exterior to the likelihood of water penetration was never explained to the buyer.
- The court found that the written report was sufficient to trigger a response from an insightful purchaser, but without the basic knowledge the professionals all had, which the buyer did not have, it did not trigger a concern for her and she never read it. Rather, she relied on the oral communication.
- The court found that the standard of care applicable to the home inspector was to make a visual inspection and communicate concerns relating to the various items in his checklist.
- Communication in this case fell below the standard. The verbal was inconsistent with the written and the written required explanation to be useful; the contract exclusions do not apply because the parging and driveway defects could be visually observed but their significance in the potential for moisture penetration was never reported or explained.
- Upon completion of the home inspection, the agent took a hands-off approach and never read the report. He accepted the home inspector’s oral evidence. He knew the important notes would be on the last two pages where critical deficiencies were addressed and he emphasized those matters with the seller’s agent (namely, the furnace).
- The agent induced the buyer to rely on the home inspector and then washed his hands of any responsibility to his client as to what use should be made of the home inspector’s report. He recognized a duty to discuss concerns with the home inspector, but fell below the standard of care by failing to review the report with his client before waiving the home inspection condition.
- As for the buyer, though her reliance on oral reassurances was reasonable, she must take some responsibility for failing to review the written report itself.
The judge proportioned liability in the case as follows:
Home inspector – 50%
Real estate agent and brokerage – 25%
Buyer – 25%
To read the complete decision, click here.
Do you agree with the Court’s decision? How would you have proportioned liability in this case?