The Pre-Listing Renovation Disclosure
A salesperson takes a listing on a 1962 detached bungalow in a mid-sized Ontario city. During the listing appointment the seller mentions, almost in passing, that the basement was 'finished a few years back' by a contractor who has since moved away. The seller has no permit documentation, no inspection records, and admits the ceiling height in the finished area is about 6'4". The salesperson also notices a freshly painted patch on the basement ceiling directly below the main-floor bathroom, and the seller says a 'small leak was dealt with' last spring. The seller wants to list at a price comparable to fully renovated homes on the street and asks the salesperson not to mention the basement work in the listing because 'buyers will just use it against us.' The property is being marketed to first-time buyers. The salesperson has a signed listing agreement but no completed seller property information statement.
1. What must the salesperson do about the seller's request to omit the basement work from the listing, and what disclosure obligations apply?
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The salesperson cannot agree to conceal the basement work. Under the regulatory framework (in Ontario, the Trust in Real Estate Services Act, 2002 and its regulations, plus RECO's Code of Ethics), a registrant must treat clients with fairness, honesty and good faith, and must not knowingly make a false or misleading statement or omit a material fact. Latent defects that the seller knows about and that make the property dangerous or unfit are material - an unpermitted basement finish with a low ceiling and a possible unresolved leak is exactly the kind of fact a reasonable buyer would want to weigh.
The practical answer is not 'put it in the ad' but 'get it into the record and let the buyer decide.' The salesperson should: (1) recommend the seller obtain whatever permit records exist from the municipality; (2) complete a seller property information statement or written disclosure, accurately describing the basement finish as unpermitted and the leak history; (3) disclose the unpermitted status in the listing where required by local rules and in the marketing description honestly (e.g., 'finished lower level, buyer to verify permits'); and (4) document the seller's instructions and the salesperson's advice in writing.
If the seller insists on a false or misleading listing, the salesperson must decline and consider whether to terminate the listing relationship. The salesperson should also flag the low ceiling and the fresh patch as items the seller should have inspected, because a buyer's inspector will find them and the salesperson's own credibility is on the line. Silence is not neutral here - it is a misrepresentation risk for both the seller and the registrant.
2. The seller refuses to sign any property information statement. How should the salesperson handle the listing and the buyer's questions?
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A seller is not legally obliged to complete a property information statement, but the salesperson is still obliged to avoid misleading buyers and to disclose material facts the salesperson knows. The salesperson should not simply drop the issue.
Steps: (1) Record in the file that the seller declined to provide a statement, and what the salesperson advised. (2) Ensure the listing description does not overstate the property - no 'fully renovated' or 'move-in ready' language that the basement work contradicts. (3) When buyers ask direct questions, the salesperson must answer honestly: the basement finish is unpermitted, the seller reports a past leak, and the buyer should verify. The salesperson cannot say 'I don't know' if they do know. (4) Recommend the buyer make their offer conditional on a home inspection and on obtaining any municipal records, and put that recommendation in writing. (5) If the seller later instructs the salesperson to lie, the salesperson must refuse and escalate internally.
The key exam point: the absence of a seller statement does not transfer the disclosure burden onto the buyer. The registrant's own knowledge still triggers a duty to disclose material facts, and the salesperson should document the advice given so the file shows a good-faith effort.
3. The property is listed and a first-time buyer submits an offer with no conditions. What should the salesperson do before the offer is accepted?
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The salesperson represents the seller here, but the seller's interests and the salesperson's regulatory duties both point the same way: an unconditional offer from a first-time buyer on a property with known issues is a lawsuit waiting to happen. The salesperson should advise the seller, in writing, of the risks of accepting an unconditional offer when the seller knows of unpermitted work and a leak history - the buyer may later allege misrepresentation or latent defect.
The salesperson should also make sure the buyer's side (if represented) has been given the disclosure information, and if the buyer is unrepresented, the salesperson must be careful not to provide buyer-side advice while still not misleading. The salesperson can suggest the seller consider requiring the buyer to acknowledge the disclosure in the agreement, and can recommend the seller obtain legal advice before accepting.
The salesperson must not pressure the buyer to waive conditions or imply the property is problem-free. Document the disclosure, the advice to the seller, and the buyer's acknowledgment. If the seller wants to accept immediately, the salesperson can proceed but should ensure the agreement and the record reflect what was disclosed.