In a previous blog I highlighted some of the most common themes seen in Alberta real estate lawsuits, according to statistics, and I want to dive deeper into one particularly tricky category – disclosure. What kind of issues, physical and otherwise, do you have to disclose? When? How?
The Real Estate Act of Alberta and its regulator, the Real Estate Council of Alberta (RECA), deal with disclosure and specifically addresses disclosure as it relates to two of the most common areas of error – material latent defects and stigmatized properties.
Material Latent Defects
RECA says “If a property has a defect that cannot be discovered with reasonable care during an inspection, that is a latent defect. A material defect is a defect that reasonable people would agree is significant in the particular circumstances of a transaction”. The Real Estate Act Rules help provide guidance to determine what kind of issues a seller must disclose.
It is not possible to list every type of material latent defect but RECA says they include defects that:
- Make a property dangerous or potentially dangerous
- Make a property unfit to live in
- Make a property unfit for the buyer’s purpose (example: the buyer is severely allergic to dogs and asks the seller to confirm in writing that no dogs have ever resided on the property. Because a home with any dog’s hair makes the “property unfit for the buyer’s purpose” the seller may be required to disclose their prior pooch.)
A material latent defect may also exist if:
- The defect is very expensive to repair
- The seller has received a local government or authority notice that a circumstance of the property must be remedied
- The seller does not have appropriate building or other permits for the property
Under law, sellers can’t hide defects or mislead buyers about the property’s condition, must disclose material latent defects in writing and must honestly answer questions they are asked. Again, there are many examples of disclosable defects and some provided by RECA include:
- The seller has finished the basement of their house and in the process covered the large crack in the basement wall that affects the structure
- The seller has finished the basement of their house, or built an addition or garage, without the appropriate permits
- The seller knows that whenever it rains, water enters the house
- The home was a former illegal cannabis grow-op and repair of the property has not occurred (see stigmatized properties for how to handle remediated grow-ops)
All of the above examples would be considered a material latent defect and the seller must disclose the issue to the buyer, in writing. When I am listing your home, we will cover this in the representation agreement so we are ready to accept an offer and get it sold.
According to their information bulletin, RECA describes a stigmatized property saying the term “stigmatized” means an unfavorable quality in a property or makes the property less attractive or unattractive. A property that a buyer might avoid for reasons that are not related to the actual physical condition or features of the home.
These are less tangible potential issues for some than an above material latent defect and some examples of stigmas given are:
- A suicide or death in the property
- The property was the scene of a major crime
- The address of the property as the wrong numerals (religious and culturally driven generally)
- Reports that a property is haunted
- A former illegal grow-op that has been fully remediated
The thing about stigmas is that they are very subjective, personal really – what might bother me may have no effect on someone else. When discussing their needs and wants with my buyers is generally where stigmas come up and I’m ready to put on my detective hat to find out every detail possible about your potential new home to make sure it is everything you expect and more.
Unlike material latent defects, sellers are not required to disclose a stigma but they can’t lie when asked a question. So, if a seller or their agent is specifically asked “Has there been a death in the property?” the answer you will generally get is “Yes”, “No” or “I’d prefer not to answer”. Declining to answer the question usually means one of two things – the seller legitimately doesn’t know/is unsure OR they do know and are exercising their right not to disclose. As a seller, it’s important to consider the legal and possible financial implications of answering the question. RECA puts it well saying “Sellers may face a dilemma to disclose a circumstance that may negatively affect the value of their property. Do they disclose and risk harming our property value or do we not disclose and risk the buyer learning the information later and pursuing damages?” Getting legal advice on disclosure of a stigma is always recommended.
But that isn’t the end of my investigation! There are other ways to look in to the history of a property, without the assistance of the seller, and some include: an internet search of the address, chatting with the neighbours, reviewing the title and checking with local authorities for any records on the home. I will do everything possible to get the answers you need to make the best decision for your home purchase.
You can see how complicated disclosure of all kinds can be and having a professional by your side offers the protection you deserve in the most significant purchase of your life. I’m here to help you navigate the intricacies of buying and selling a home, call me anytime or visit me on Facebook and Google!