In simple terms, a material fact is one that would could affect a buyer's decision to purchase a property or the price they would pay. It is generally characterized as a latent defect -one that is hidden, often known by the seller but concealed and more specifically, one that would not be discovered in the usual course of a general home inspection.
Sellers want the most money they can get for their property and knowing a latent defects exists, some will either rationalize that they have fixed the problem so there is nothing to disclose or, throwing caution to the wind, they gamble that a lawsuit won't be raised. Yet, when sellers become buyers they would think themselves deceived in such a case. While there is no Canadian statute that requires such disclosure by sellers, the courts do rule against them for concealment on moral and even fraudulent grounds. The REALTORS® they hire though are obligated to disclose if they take the listing regardless of the seller's wishes.
Two scenarios are provided, both factual, one speaks to disclosure, the other, non-disclosure.
The scenarios...
Seller A contracted a REALTOR® to list the property who then advised them about disclosure of material facts and the defense such disclosure provides. Specifically, the seller was asked about water seepage/leaking/flooding, roof issues, basement foundation, cracks and anything else they might know about the property. Sellers were very forthcoming, and although there was nothing of a hidden nature, they agreed to disclose to the buyer's representative prior to the placing of an offer and before an inspection, why evident and even the not so evident changes to the property were made.
At this point it is important to state that the lawyer they contracted after an agreement to sell was made, asks similar questions. His follow-up email underscored the degree of importance he placed on disclosure because of a typographical error wherein he stated that they chose not to disclose these matters to the buyer, even though they did. In essence, his response is intended to reiterate his discussion with his client and any advisement given.
Seller B contracted a relative who is a REALTOR® to list their property for sale. When initially purchased, Seller B who as buyer, was advised by the home inspector that the roof, eaves, downspouts and others had to be attended to, and accordingly, a reduction in price was negotiated. In part, the others were addressed by seller but not the aforementioned. After heavy rainfalls, leakage into the basement took place. To make a long story short, Seller B was advised that the fault lay with the eaves and downspouts, one of which fell off. After deliberating between seeking legal advice and the cost of remediation between professionals as advised by the representative they used for the purchase, they opted to do nothing. A subsequent flood was left unattended whereby an extensive amount of mould was found underneath the flooring and behind the drywall. Again after advisement to contract professional assistance by their buyer representative, the seller chose the least expensive remedy and hired someone as recommended by relative/REALTOR® who, according to the seller, was neither a licenced contractor nor had any knowledge of foundation issues or remediation remedies.
If you haven't guessed yet, I am the REALTOR® for Seller A, and the one that represented Seller B in their purchase. But the story is not yet over.
Unsure that their relative was doing an adequate job with the sale, Seller B contacted me and advised that they and relative/REALTOR® had come to an agreement to cancel the listing agreement within a few days. Upon being asked by seller if I would list the property, I advised them that I would be required to disclose the flooding, mould issues and from what I knew about its correction would be recommending a considerable reduction in price. We also discussed helping them find a new home.
The price reduction much less the disclosure was not acceptable to the seller.
Anyway, some weeks later, the property sold for very close to asking price and in deference to our good relationship, the seller called me to let me know they would be using their relative to buy a new place. I asked the seller if they disclosed the flooding and mould and the answer was no. Whether this will be contested in court at some future date, is anyone's guess.
Surprisingly, they were told by their lawyer - another relative, and one whom I did recommend, until this, that since the problem was fixed, disclosure was not necessary.
The moral of the story is:
Not all sellers think alike, nor REALTORS®, nor lawyers. Choose wisely!
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