What would you do if a seller whose house you were just about to list told you the reason she’s moving is because the house is haunted? Would you disclose that to potential buyers? What if the seller told you that somebody had passed away peacefully in their sleep in the house? Would you disclose that to potential buyers? Would your answer change if a murder had been committed in the house? What if this was not your listing but you had a potential buyer for it. Would you disclose any of this information to them?
What we are describing here are stigmas, which can be a very sensitive topic for sellers, buyers, and agents alike, and handling them with care and skill is the best way to protect your client, and by extension, yourself.
Many of you may be surprised to know that there is no Common Law or Statute that says you must disclose a stigma. In other words, from a legal perspective you do not have to disclose that a death occurred in the house (peaceful or otherwise), that the house is haunted, that it was used as a brothel, etc.
When the buyer is cutting the lawn for the first time when the weather turns nice, about 2 months after the buyer closed on the house, and sees a hat and 2 eyes peeking over the fence, and the person attached to the hat and eyes says, “Oh, so you bought the murder house, huh?” the buyer may very well sue. This action will be brought against the seller and you and the brokerage.
If you are listing such a house and the seller tells you not to mention it, you should always advise your seller to seek legal advice as to whether or not this should be disclosed to potential buyers (by putting a note in the remarks for brokerages in the listing for the coop agents to call you, for example). Notwithstanding the fact there is no legal obligation to disclose a stigma, different types of stigmas may or may not be a material fact for a buyer. Even though there may not be a legal obligation to disclose, failure to disclose could still give rise to a lawsuit.
Advising your seller to obtain legal advice as to whether or not the stigma should be disclosed is the best way to protect your client. Make sure your seller gets the advice in writing from the lawyer and that you have a copy of it, as well.
Please note that when working with a buyer, your obligation is to discover and disclose all material facts. So, if you discover a stigma, tell your buyers and let them decide if it’s a problem for them.
As you may suspect, the plot thickens when you are in multiple representation. The seller may have instructed you not to disclose but, as we have just seen, you must disclose to your buyer. So what to do? Your best bet is to explain very thoroughly to the seller, before the listing is signed, how not being allowed to disclose may prevent you and anyone else from the brokerage from bringing potential buyers to the property and discussing how that could impact their ability to sell the property.
It should also be noted that a grow op should always be disclosed, owing to the physical damage that often results from a grow op, which is different from the psychological nature of stigmas.
For more information and further clarification about this topic, please read the Registrar’s Bulletin here: https://www.reco.on.ca/registrars-bulletin/stigmatizing-issues/