The stigma enigma

Dealing with real estate's S word

Calgary's real estate industry has come under the microscope recently, with some questioning the degree to which professionals are obliged to reveal perceived flaws in properties up for sale.

While CREB® President Bill Kirk acknowledges there is a "grey area" that exists with stigmatized properties — a point brought to light last week when a Brentwood home that was the scene of Calgary's worst mass killing went up for sale – he emphasized reactions to such homes are as varied as the circumstances surrounding them. "The stigmatization question is a significant issue for many REALTORS®," he said. "After five or six years in the business, most professionals will have encountered a number of buyers who have very specific reactions to stigmatization."

For example, Kirk argues many buyers, in fact, don't have any concerns when approaching a home that has fallen under the cloud of stigmatization. Secure in the knowledge the home is structurally sound, they proceed in the same fashion as any other homebuyer.

For others, however, Kirk acknowledges buying or selling a stigmatized home can lead to some difficult questions. Whereas a typical home purchase comes down to hard facts and figures, such as asking price or square footage, questions surrounding stigmatized homes can involve a little more explanation.

Under Canadian common law, sellers and their agents, REALTORS®, have an obligation to reveal material latent defects they are aware of. What constitutes a material latent defect, varies, but generally is something that's not visible under a normal inspection by an average person – it can refer to something that makes a property dangerous or potentially dangerous, unfit to live in, unfit for the buyer's purpose.

A material latent defect can also be something that is expensive to repair, has been identified for remediation by a local government or authority of if a seller does not have appropriate building or other permits for the property.

Conversely, a patent defect is one that is readily seen, and therefore does not need to be disclosed because it is obvious.

"The issue with a stigmatized property is where there is no requirement to disclose because there is no defect with the property," said Kirk, noting examples of stigmatized issues can include a property that was the scene of a major crime, was previously vandalized or a former grow-op that has been remediated.

"It has no effect on the property in a real sense. So the seller's instruction [to the REALTOR®] could very well be, 'You will not disclose this stigmatization. You will not disclose the fact that this situation arose on this property because it's been repaired and has nothing to do with the property.'"

Under such a scenario, Kirk said buyers could be faced with the uncomfortable situation of purchasing a home, only to find out at a later date that it was the site of some previous transgression.

"In the area of stigmatization, the issue is the first, apple pie over the fence welcoming the new neighbours to the neighbourhood, will [be accompanied] with, 'Thank God you bought the grow-op house because now we'll have a family in there instead of some drug dealers,'" said Kirk.

"So from the point of view of the REALTOR®, most of the time – in almost every case I can think of – the REALTOR® would rather be able to disclose a stigmatization that is not a defect but if has an effect on the property. They want to disclose it because they know, sooner or later, it's going to be disclosed to the buyer anyway. We'd rather be up front."

Helping to clarify the issue are recent changes to the way real estate transactions in the province are handled. Although long standard in the industry, the Real Estate Council of Alberta's (RECA) move to make written service agreements between consumers and realtors mandatory means buyers should be aware any questions regarding stigmatized homes should be put in writing.

"Part of the investigation of the buyer's agent is to ascertain, very precisely, what the needs and requirements of the buyers are. And frankly, stigmatization should figure prominently in that discussion," said Kirk.

"When you're writing down on the contract, 'On your behalf, Mr. and Mrs. Buyer, what am I looking for?,' that should be one of the questions. If there was a situation in the house where there had been a violent or criminal act, or it had been the subject of a police investigation, buyers need to ask whether that's pertinent information to them or not? That question should be coming up."

Kirk further argues that while REALTORS® are there to facilitate real estate transactions, they do not replace the need for buyers and sellers to be actively involved in the process.

"We are creating an agreement between buyers and sellers that does include us," he said. "We are agents of each, and in a perfect world, we'd share a brain with our clients and know exactly what's to their benefit.

"In the best negotiated contract, the fully informed seller would sell a house to a fully informed buyer and we only appear on those contracts as a witness. Our job is to bring it to that point. It truly is a contract between a buyer and a seller and we are only there to facilitate it."