By Brian Madigan LL.B.

This case seems rather straightforward. The owner of a property situate in the Grand River Conservation area lists his property for sale. The agent, Ralph Murphy fails to ascertain the zoning and the development restrictions that apply to the property.

Murphy is approached by a purchaser who wants to build on the site. There is ertainly a nice view of the Grand River. It’s close, in fact, too close “for development” according to the Grand River Conservation Authority.

The listing agreement was somewhat on the faulty side. It said that the present use was “single family dwelling”. Both the vendor and the purchaser knew that the property was vacant. So, you would have thought that the Murphy would have known this too!

Murphy acts for the purchaser and prepares an Offer, but never has the purchaser sign a representation agreement or an acknowledgement that he obtained a copy of the offer.

AGREED STATEMENT OF FACTS

1. John Murphy is a Member of RECO and at all relevant times was registered as a broker trading on behalf of the broker Brokerage ABC Realty.

2. On July 7, 2003, Murphy listed for sale vacant rural property.

3. The Property is approximately 5.8 acres in area. The municipal zoning designations applicable to the Property include in part the designation General Agricultural – A1.

That designation covers a triangular area in a corner of the south-eastern portion of the Property with dimensions of 125 feet more or less by 250 feet more or less.

The majority of the Property is covered by the zoning designation Open Space Conservation – OS2.

4. The Property lies entirely within the floodplain of the Grand River. It is subject to the jurisdiction of the Grand River Conservation Authority which prohibits new development on the Property.

5. At the time he listed the Property, Murphy checked with the Township about the zoning on the Property. Murphy was aware the Property was subject to the jurisdiction of the Conservation Authority.

6. Murphy did not disclose either the zoning designations nor the jurisdiction of the Conservation Authority on the MLS Listing.

On the MLS Listing, Murphy described the property as:

“A Unique Parcel With The Grand River Running Thru. On A Dead End Road Offering Privacy. From City B go West On Road A To Road B Turn Right (North) To Road C, Then Turn Right (East) To Sign on Left (North) Side of Road”.

7. On October 15, 2003, the Robert Jones made an agreement to buy the Property for $25,000.00, with a completion date of January 30, 2004. That transaction was completed.

8. Murphy represented the Jones as well as the sellers with respect to the Agreement of Purchase and Sale and the related transaction. The Agreement of Purchase and Sale includes the following:

“The parties to the transaction acknowledge that the Listing Broker represents the interests of the Seller and Buyer, and there has been, and is, dual agency. The Seller and the Buyer have previously acknowledged and consented to such dual agency”.

Notwithstanding this, Murphy did not enter into a buyer representation agreement with the buyer at the earliest practical opportunity and before an offer to purchase was prepared and submitted.

9. Murphy failed to personally verify, discover and disclose whether new development on the property would be permitted, in circumstances where the Buyer’s intentions were known, the Conservation Authority’s jurisdiction was known, and this information could practically have been obtained.

10. The Agreement of Purchase and Sale inaccurately disclosed the Property’s present use as “Single Family Residence”.

Notwithstanding this, all parties to the Agreement of Purchase and Sale understood that the Property was vacant land.

11. Murphy did not have Jones execute the Acknowledgement section on the Agreement of Purchase and Sale indicating receipt of an executed copy of that Agreement.

12. On February 9, 2004, Jones received from the Municipality documents indicating that the Conservation Authority had previously refused an application to build on the Property because the Property was entirely within the Grand River floodplain.

13. The Conservation Authority later independently confirmed to Jones new development would not be permitted on the Property.

14. Murphy acted unprofessionally, including:

A. By failing to personally verify, discover and disclose whether new development on the property would be permitted, in circumstances where Jones’ intentions were known, the Conservation Authority’s jurisdiction was known, and this information could practically have been obtained.

B. By not disclosing the applicable zoning designations on the MLS Listing. Furthermore, by failing to refer to the issue of the jurisdiction of the Conservation Authority in any way on the MLS Listing.

C. By making or authorizing an Agreement of Purchase and Sale that was inaccurate in representing the present use of the property as Single Family Residence.

D. By not having Jones execute the Acknowledgement section on the Agreement of Purchase and Sale indicating receipt of an executed copy of that Agreement.

Murphy is responsible under the following Rules of RECO Code of Ethics:

Rule 1 – Ethical Behaviour – A member shall:

1) endeavour to protect and promote the best interests of the Member’s client.
4) render services, including giving advice and opinion, based upon the Member’s knowledge, training, qualifications and expertise.

Rule 2 – Primary Duty to Client – A member shall endeavour to protect and promote the best interests of the Member’s Client. This primary obligation does not relieve the Member of the responsibility of dealing fairly, honestly and with integrity with others involved in each transaction.

Rule 4 – Written Representation Agreements – A member shall enter into a written Representation Agreement with a Client at the earliest practical opportunity and in all cases before any Offer to Purchase is submitted.

Rule 11 – Discovery of Facts – A member shall discover and verify the pertinent facts relating to the Property and Transaction relevant to the Member’s Client that a reasonably prudent Member would discover in order to fulfill the obligation to avoid error, misrepresentation or concealment of pertinent facts.

Rule 21 – Advertising – A member shall ensure that all advertising and promotion by or on behalf of the Member, including for Properties and services, is not false, misleading or deceptive.

Decision of the Panel

Having reviewed and considered the Agreed Statement of Facts, the Panel concluded that Murphy breached Rules 1(1), 1(4), 2, 4, 11 and 21 of RECO’s Code of Ethics.

The Panel makes the following order:

Administrative Penalty of $7,000.00 payable to RECO within 30 days.

COMMENT:

You might wonder about this case. The property was rather large 5.8 acres in total, but only a sliver was zoned agricultural and the rest was conservation lands. So, where was the house going to be? Exactly, what was Murphy told? He actually went to the municipality, so he must have been told something, and whatever that was, he chose to ignore it. Or, at least he never passed the information on to anyone.

Perhaps, he was simply optimistic about a successful rezoning application and a release of the lands from the no development zone by the conservation authority. But, how likely was that? Obviously, not very likely, since this was just an outright refusal.

Did he really know about the prior application? If not, why not? Had the vendor ever applied?

Posting “single family” on the listing seems rather silly. There was no building on site. This was an open 5.8 acre field. It is this statement which gives rise to the misrepresentation.

Murphy also knew that Jones wanted to build, that was the reason for the purchase, he wasn’t acquiring a property with access to the grand river for hunting and fishing. He wanted to build a house.

The focus then turned to his representation of Jones. He failed to have an agency agreement signed (now a buyer’s representation agreement). The panel perhaps was somewhat “picky” about the acknowledgement signing, but at this point, they are going to identify all the mistakes, even the small ones.

A much more serious view, might have been the “conflict of interest”, with Murphy acting for both sides. Then again, he really makes a mess of the deal for both parties. The only apparent winner at least in the short term would be Murphy who was entitled to a commission.

Let’s consider that matter. The property sold for $25,000 and the commission might have been $1,250 (5%). Even though he was the broker, he probably had at least $500 in expenses, to net $750, and in all likelihood be subject to income tax of $375 (50% of the net). You will notice that the RECO fine is $7,000 or almost 20 times his profit on this deal, not to mention costs, downtime, bad publicity and the loss of clients, together with the risk of exposure to a lawsuit.

Recommendations:

In a similar case to the present:

• Check the zoning with the Municipality
• Get something in writing
• Check the jurisdiction of the Conservation authority
• Get something in writing
• Obtain copies of all relevant maps, zoning by-laws and restrictions
• Advise the vendor
• Obtain copies of any applications that the vendor has made
• If such is not immediately available, obtain authorization to obtain this from the vendor’s solicitor or the municipality or conservation authority, as the case may be
• Be careful about the listing
• This is the spot where you can misrepresent the property (and incur liability)
• Also, watch any advertising
• Caution the buyer
• Consider referring the buyer to another sales representative, due to the potential conflict of interest
• Document the buyer’s relationship and instructions
• Put a condition in the Offer, depending upon the buyer satisfying himself that the property can be developed
• This transfers the risk to the buyer and the buyer’s solicitor

As a rule, I use fictitious names. The actual case is published on RECO’s website and is available to the public. For educational purposes, the names of the parties really don’t have any bearing. If you need to quote the case, you will have to obtain the proper legal citation.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

So, what are the rules related to grow houses? Does the agent have to disclose them? What about the advertising and the listing?

1. At all relevant times Wilma Jones was a Member of RECO and was registered as a salesperson with the broker Brokerage ABC Realty.

2. In 2002 the dwelling situated on property was used for the cultivation of marijuana plants. It was a “grow house”.

The Regional Police determined that, as of September 2002, there were 215 marijuana plants located on the Property at different levels of growth, including in the hallways and basement of the dwelling, at an estimated value of approximately $223,000.00. The grow house had been operating for an indeterminate time.

3. By an Agreement of Purchase and Sale dated March 15, 2003 (the “2003 Agreement of Purchase and Sale”) a buyer identified as Albert Smithson agreed to purchase the Property, which transaction was completed on June 30, 2003. Jones represented Albert Smithson as the buyer’s representative in the 2003 Transaction.

4. Prior to the execution of the 2003 Agreement of Purchase and Sale, the prior use of the Property as a grow house was disclosed to Jones. The 2003 Agreement of Purchase and Sale included the following written disclosure:

The Buyer acknowledges that the use of the property and buildings and structures thereon may have been for the growth or manufacture of illegal substances and acknowledges that the Seller makes no representations and/or warranties with respect to the state of repair of the premises and the Buyer accepts the property and the buildings and structures thereon in their present state and in an “as is” condition.

5. On January 25, 2005 Jones listed the Property for Sale on the City XYZ Real Estate Board Multiple Listing Service (the “MLS”) on behalf of the seller. The MLS Listing prepared at the authorization of Jones stated the following:

Lovely Home! Close To All Amenities, Street B and Street C, Street D, Close To
Shopping Mall.
All Electric Light Fixtures, Fridge, Stove, Washer, Dryer, B/I Dishwasher, B/I Microwave,
California Shutters, Cac, Cvac, Gdo And Remotes, Interlocking walkway. Entrance to
House From Garage.
No Disappointments.
24 Hours Notice To Tenants For Showings. Thanks For Showing!

6. On April 16, 2005, Jones showed the property to Bill Holden who became a client of the Brokerage ABC.

7. On April 18, 2005 Holden and the Smithson made an agreement of purchase and sale for the Property with a completion date of June 17, 2005.

Jones, on behalf of Brokerage ABC Realty, represented all parties to that transaction.

8. In June 2005, prior to the completion date, Holden became aware of the prior use of the Property as a grow house. Up to this point in time, Jones had not disclosed to her client, Holden, that the Property had been a grow house, nor did she give him a copy, or disclose the existence of the written disclosure that she and the seller were given in the 2003 Transaction, described above.

9. From June 8, 2005, Holden called Jones and left several telephone voice messages. After he contacted the office manager at the Brokerage, Jones Holden’s call and indicated that she was aware that a previous owner had been preparing the Property to be a grow house but the operation was stopped by police before it began.

Jones indicated that she had forgotten to tell this to Holden. After this conversation, Jones also faxed to Holden the written disclosure about the grow house which she had been provided in the 2003 Transaction.

10. On June 9, 2005 Holden requested a mutual release from the 2005 Agreement of Purchase and Sale, including return of his deposit funds.

11. Jones failed to disclose that the Property had been a grow house i.e., failed to disclose what she had been told about the Property and in light of that information, failed to verify whether the Property had been a grow house on behalf of her client, Bill Holden when this information could have practicably been obtained.

12. The Property was later re-sold. Jones did provide disclosure with respect to the grow house to the ultimate purchasers. The Property was inspected, which did not uncover evidence of structural damage to the Property resulting from the grow house.

The RECO Panel concluded:

Jones is responsible under the following Rules of RECO Code of Ethics:

Rule 1 – Ethical Behaviour – A member shall:

1) endeavour to protect and promote the best interests of the Member’s client.
2) endeavour to protect the public from fraud, misrepresentation or unethical practice in connection with real estate Transactions.

Rule 2 – Primary Duty to Client – A member shall endeavour to protect and promote the best interests of the Member’s Client. This primary obligation does not relieve the Member of the responsibility of dealing fairly, honestly and with integrity with others involved in each transaction.

Rule 10 – Misrepresentation or Falsification – A member shall not make any statement or participate in the creation of any document or statement that the Member knows or ought to know is false or misleading.

Rule 11 – Discovery of Facts – A member shall discover and verify the pertinent facts relating to the Property and Transaction relevant to the Member’s Client that a reasonably prudent Member would discover in order to fulfill the obligation to avoid error, misrepresentation or concealment of pertinent facts.

Rule 21 – Advertising – A member shall ensure that all advertising and promotion by or on behalf of the Member, including for Properties and services, is not false, misleading or deceptive.

RECO concluded with an Administrative Penalty of $15,000.00 payable to RECO within 180 days.

COMMENT

This particular case proceeded as an agreed statement of facts. Basically, that means that Wilma Jones pleaded guilty to the charges as presented by RECO.

There are a few interesting points:

• She clearly knew about the grow house operation
• She had an obligation to disclose that information to the public (any third parties)
• She had a greater duty to disclose that information to her own client
• Mention should have been made in the listing or at the very least a comment to contact the listing agent
• Information needed to be verified if it was unclear
• Advertising needed to be accurate

Recommendations:

• Do not conceal information about grow houses
• Ensure that some note is placed upon the listing (even if it is simply contact)
• Be forthright about your knowledge
• Consider not acting for both parties
• Refer to buyer to another agent
• Avoid the conflict of interest
• Never place the interest of one party over that of the other client

By way of further comment, the information at the time was available from the police. Some police forces will not disclose this information anymore due to the provisions of the Privacy Act. So, be careful. If you’re suspicious, make inquiries. Also, consider including a condition in the Offer to protect the buyer

As a rule, I use fictitious names. The actual case is published on RECO’s website and is available to the public. For educational purposes, the names of the parties really don’t have any bearing. If you need to quote the case, you will have to obtain the proper legal citation.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

Some conservatives believe so strongly that the president is Kenyan, the mainstream media decided it was a story.

By Brian Madigan LL.B.

This case is an interesting one. What is the duty of a real estate broker if the other sales representative thinks there is a competitive bid situation?

What happens if the buyer thinks there is a competing offer, and there isn’t one?

If you are interested, have a look at the following decision made by RECO. The names have been changed, and there was an unsuccessful appeal, so from an educational perspective the relevant facts are set out by the Discipline Panel.

I should point out that all the names are fictitious.

PANEL’S DECISION:

The Panel makes the following findings of fact:

1) to 6) intentionally omitted.

7.) Bill Holden was a potential purchaser who had established a relationship his own real estate representative Conrad Jones.

8.) In March of 2005, Conrad Jones showed Bill Holden a home located at 1-AB Street, City A, Ontario (the “Property”).

9.) The Property was listed for $449,000.00. Mr. Smith was the listing salesperson on the Property.

10.) On March 7, 2005, Bill Holden viewed the Property for a second time.

11.) That same day, Bill Holden decided that he wished to place an offer on the Property. Conrad Jones furnished Holden with comparable sales in the area before arriving at an offer price. Holden decided to make a conditional offer on the Property with a price in the low $400,000 range. The decision to offer less than the list price was based, in part, on the fact that the Property would need certain upgrades, and based on the fact that the property had been on the market for awhile.

12.) Subsequent to the preparation of the offer, Conrad Jones’ assistant received a call from Mr. Smith who advised that it was possible another offer would soon be received on the Property. This information was relayed to Jones by his assistant.

13.) There was a miscommunication between Mr. Smith and Jones’ assistant. Mr. Smith’s advice that there might be a competing offer forthcoming on the property was incorrectly relayed to Jones, and then to Holden, to the effect that there was to be a definite competing offer forthcoming.

14.) While Holden and Jones found the existence of a competing offer to be suspicious (given that the Property had been listed since September 2, 2004 without any other offers) Holden was very interested in the Property and did not want to lose it to a competing purchaser.

15.) Holden advised Jones that he was unable to meet to sign the documents until 8:00pm that evening. Accordingly, Jones’ colleague, Martha Williamson, contacted Mr. Smith to advise him that Holden would not be able to sign the Offer until approximately 8:00 pm that evening.

Mr. Smith assured Williamson that he would wait for the Offer before presenting all offers to the sellers. At no time during Williamson’s conversation with Mr. Smith did he indicate to her that he was not in possession of a competing offer on the Property. At no time did Mr. Smith subsequently contact anyone on behalf of Holden to advise that there would be no competing offer.

16.) That evening, Holden met with Jones for the purposes of signing a significantly revised offer from the offer he had contemplated earlier that day.

In light of the competing offer Holden decided to place an unconditional offer on the Property in the amount of $450,000.00.

17.) Jones met with Mr. Smith at the Property to give him the Offer. At the time Mr. Smith received the offer from Jones, Mr. Smith was aware that both Holden and Jones were under the mistaken belief that a competing offer was to be presented. Mr. Smith did nothing to dispel that belief.

18.) About forty-five minutes later, Mr. Smith emerged from the property, having presented the Offer to the vendors, and informed Jones that the Offer had been accepted.

19.) On March 13, 2004, Jones advised Holden that (based on a conversation that he recently had with Martha Williamson) no competing offer had been presented.

20.) Holden would not have tendered an unconditional increased offer on the property in the absence of an honest belief that a competing offer for the property was to be presented in competition with their Offer.

While the Panel is unable to conclude that Mr. Smith ever actually stated that there was another offer in existence, the Panel finds, as a fact, that prior to presenting Holden’s offer to the vendors, Mr. Smith knew that Jones (and therefore Holden) was acting under the mistaken belief that a competing offer was to be presented on the evening of the presentation.

Indeed, for him not to know this could only have been as a result of wilful blindness on Mr. Smith’s part. Holden’s offer had all of the earmarks of an Offer designed to succeed in a competitive situation:

The Offer contained:

1) a price in excess of the list price;
2) it met all of the vendor’s terms with the property inspection clause struck
out – despite the fact that the property was clearly in need of cosmetic repair;
3) the property had been on the market 95 days in total, had been re-listed and reduced to compete in a hot market: and,
4) had been the subject of 25-30 showings with no offers.

These facts – coupled with the fact that Mr. Smith had earlier asked his assistant to contact Jones to advise him of a potential competing offer – were sufficient to put Mr. Smith – or any registrant exercising any reasonable judgment – on notice that a mistake had been made. In addition, the Panel heard evidence of a personal enmity between Mr. Smith and Conrad Jones.

Under the circumstances, and based on the foregoing facts, the Panel must conclude that Mr. Smith is in violation the following rules of the RECO Code of Ethics:

Rule 1 – Ethical Behaviour – A Member shall:
(2) endeavour to protect the public from fraud, misrepresentation or unethical practice in connection with real estate Transactions
(5) deal fairly, honestly and with integrity with the public, other Members and third parties;

(The Panel found no evidence of deliberate fraud in Mr. Smith’s conduct. However, the Panel finds that the offer would not have been made if the actual situation had been clearly represented as a single offer presentation. Mr. Smith should never have allowed the offer presentation to proceed without clarifying the situation.)

Rule 2 – Primary Duty to Client – A Member shall endeavour to protect and promote the best interests of the Member’s Client. This primary obligation does not relieve the Member of the responsibility of dealing fairly, honestly and with integrity with others involved in each transaction;

(The Panel wishes to clearly state that a registrant cannot avoid his obligations under the rubric of: “but I was just getting the best deal for my Seller”. The Code is not one sided and it demands diligence and fair dealing for all parties.)

Rule 10 – Misrepresentation or Falsification – A Member shall not make any statement or participate in the creation of any document or statement that the Member knows or ought to know is false or misleading;

(Mr. Smith knew that the offer was being presented under a false understanding of the situation by the purchasers and their agent).

Rule 46 – Unprofessional Conduct – A Member shall not engage in an act or omission relevant to the practice of the profession that, having regard to all the circumstances, would reasonably be regarded by Members or the public as disgraceful, dishonorable or
unprofessional;

(We are of the view that Mr. Smith’s conduct resulted in the treatment of the public in a disgraceful and dishonorable manner).

In the result, the Panel concurs with RECO’s request for an administrative penalty against Mr. Smith in the amount of $10,000 to be paid within 60 days.

COMMENT

You might wonder what all this means. Mr. Smith did appeal but that was not successful and therefore does not really have an impact on the conclusions one would draw from this case.

Smith had some positive duties at law. If he thought that he might have misled the buyer or his agent he had a duty to inform them.

In fact, even if they were under the mistaken belief themselves, totally without his involvement in any way, he still had a positive duty to assist them. That is what this case really stands for: the positive duty to be observant and intervene if the opposing parties are acting under a mistake.

In fact, failure to do so, can result in a $10,000.00 fine.

This is often quoted as a case involving phantom offers, but really it’s not. The result would have been much worse for Mr. Smith had that been the case. This is simply a multiple offer situation. RECO points out the positive duty upon Smith in the circumstances to correct any mistake or misapprehension of either the purchaser or his agent.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.
The most expensive real estate is worth nothing!

Forty years ago today, on 20 July 1969, man first stepped foot on the moon. Getting there, cost billions! But, what’s that property worth today? Probably nothing!

Disadvantages

• It’s remote
• It’s difficult to get there
• It’s risky to get there
• It’s expensive to get there
• It’s also possible, you won’t get back

• When you’re there, there’s nothing to do
• There’s really nowhere to go
• Unless you’re a scientist, it’s difficult to amuse yourself
• OK, I forgot about the jumping around part, but that can only last an hour

So, we come back to the basic question. What would that particular property be worth today? It’s about one acre in size.

Advantages

• The moon certainly has a very nice view
• You don’t have to worry about running into people you don’t know

Location, Location, Location

When it comes to real estate, the common cry of “location, location, location” seems drive the value and the price.

The moon has none of this. Dust, rocks and minerals are all that’s up there. There’s no infrastructure, no rules, no food, no water. And, there’s plenty of space around. Land is certainly in no shortage.

If the one acre that you wanted was taken, you’d take the next acre. Basically, it’s free!

That means the value of the moon is really like the value of North American in the 16th century. If you could get there, the actual parcel of property would be free to the new inhabitants.

The real value of the moon was “in getting there”. The race to the moon spawned countless scientific discoveries including the use of computers, cellphones, magnetic imaging, and many other products that are in common usage today.

So, I’m not questioning the value of going to the moon, just the value of that small one acre parcel of property in the universe.

When it comes to valuing real estate: remember two rules:

1) location, location, location, and
2) price, price, price.

Basically, as for location, it’s just a remote campsite with a spectacular view. As for price, it will cost you billions just to get there. And, there’s no guarantee of a round trip!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Why are some contracts “sealed” and others are not?

In order to have a contract, you need to have an “agreement” that the Courts will enforce. Not all statements that are made, result in enforceable promises. Remember, all the promises made at election time!

Sometimes, it is necessary to determine which promises should be enforced. Really, there are basically three types of contracts:

• Those that have consideration (something offered, something given up)
• Those under seal (without consideration)
• Those that have consideration and are under seal (the most common type)

The legal seal is evidence that a promise is intended to be a legally enforceable promise. A promise might otherwise simply be a gift. A promise together with consideration is a legally enforceable contract. That premise arose out of the modern law of contracts. When I say “modern” I mean the last 700 to 800 years.

The concept of documents being executed under “seal” preceded modern contract law. Documents executed under seal were considered to be legally binding and enforceable promises.

Seals were used in Babylonia in 3200 BC to identify and authenticate the author and the agreement. Seals were commonly used by nations to settle disputes following war. The red wax seal (symbolizing blood) was used by Caesar. The first usage of seals in modern times was the period immediately following the Norman Conquest in 1066. From that time until 1215, seals were all the rage. They were the equivalent of cellphones. Everyone had a seal. This was your identification and served to indicate that you had the legal capacity to enter into a promise that was legally enforceable. It didn’t have to be a contract. You would be taken as a “man of your word” because you had a seal.

The poorer class, of course, didn’t have seals. They would “prick their right thumbs” with a sharp object to draw blood and impress a document with their thumbprints. Later, Courts would recognize this activity as being the equivalent of executing a document under seal.

By 1215, the modern day usage of seals was introduced to England by the signing of the Magna Carta, often viewed by historians as the first bill of rights, the first constitution and the birth of the common law.

There continues to be a special class of documents executed under seal. A promissory note is enforceable for 6 years, but a promissory note executed under seal is enforceable for 20 years. In essence, the practice grew out of an ancient system of authenticating documents rather than contract law. So, naturally there are some differences with the rules.

The limitation is usually longer. Basically, why get a promissory note that will only last 6 years, when one under seal will last 20? And, don’t forget that a mortgage is a promissory note.

It became commonplace for everyone to want just about everything executed under seal. All important documents were under seal. That was the way Kings and Queens did business. All deeds were executed under seal. That, of course, is no longer the case, but it was until 1985.

More recently, Courts have begun to erode the special status of documents under seal, by holding many other contracts to this higher standard.

Most standard form legal contracts include the words “signed, sealed and delivered” just above signatory line. You will find that in the standard form agreement of purchase and sale. The black dot is the location for the seal to be affixed. Seals today are small red circular dots with glue on the back. They should be affixed. However, any indication of an intention to execute the document under seal is sufficient. So, if you circle the black dot in ink, that will work and be just as good.

The custom at the present time is that just about all formal agreements documenting business transactions are executed under seal.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal Lepage Innovators Realty, Brokerage 905-796-8888,
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Really, this is a common occurrence. Bob and Linda Smith bought their home 25 years ago directly from the builder. Fred and Lynne Brown bought their home, which is the identical model to the Smith’s, from the first owner about 15 years ago.

When they were first newly constructed homes they were within a few thousand dollars of each other, but what about now? From the outside they look pretty much the same. They are both on quiet courts, just a few blocks from one another. The landscaping has nicely matured and both homes have great street appeal. So, we’ll have to look inside.

The Smiths are looking forward to their retirement. They have purchased a condominium apartment and they are about to embark on a 9 month world cruise. Over the years their house has been reasonably well maintained, but did show a little wear and tear due to their 2 active children.

Planning for their retirement 5 years ago, they decided to upgrade the home. They installed a new furnace and a new air conditioner and replaced the roof. When the children became teenagers, they finished the basement, and when they moved out they upgraded the basement quite substantially.

Again, knowing that they would be selling their home they replaced the windows and doors, knocked down a bedroom wall to expand the master, and installed a new ensuite bathroom that was just like a spa. Just before listing the property, they put in a new kitchen, new hardwood floors and new broadloom.

But, their timing wasn’t quite right, by the time the new kitchen was ready, they had just missed the market, prices had dropped and demand had fallen off too. They listed their house for $499,000, but it didn’t sell.

What does that mean for the Browns? They too needed to sell their house. A great business opportunity was going to take them across the country. They are 20 years younger than the Smiths and due in part to their 5 children, have less money to spend on the house. They were quite concerned about maintaining the property from the outside, so they replaced the roof. The house had a great street presence, but inside, it was another matter. The entire place looked rather tired. Original kitchen and bathrooms, worn out broadloom, windows and doors that were stuck certainly didn’t help. The furnace was on its last legs and the air conditioner no longer worked. And, they never got around to finishing the basement.

The Browns listed for $459,000, but it didn’t sell either. The Smith property had $75,000 in improvements and renovations that the Brown property didn’t have.

One more comment about the Smith property. Although the mortgage had long since been paid off, Mrs. Smith was a bank manager and she thought interest rates were going up. So, she arranged a $ 420,000 assumable first for five years (with four years left) at rates that were now 1.75% below market. This is worth $7,350/year or $29,400over 4 years.

So, what happened? The Smiths became anxious and dropped their price by $30,000. Within a week they received an offer and sold their property for $469,000, the full asking price.

What does this mean for the Browns? At first, they became a little anxious. A house with $75,000 in improvements and an almost $30,000 financial benefit had just sold for $10,000 more than their asking price. Did they have to reduce their price to $354,000 to get it sold? Of course not!

Three couples came to look at their house the week after the Smith house sold. Two had seen the Smith house and were just very disappointed. The third couple had not seen the Smith house and put in an offer for $455,000. Their agent had told them that the house around the corner just sold for $10,000 more and that most houses sell within 99% of the listing price.

Is there a moral here? Would we have any advice for the parties:

Smiths

• don’t do extensive renovations prior to the sale, you may not be compensated for them
• beware of over-improving your property
• list the house aggressively from the outset
• don’t overprice and reduce it later
• choose your listing time, don’t be delayed by renovations

Browns
• be sure to main the exterior and street appeal of the house
• once the Smith house was sold, theirs was the only one on the market
• don’t be discouraged about the sale price of the Smith house
• not every buyer will be able to make the comparison
• the longer the interval between the Smith sale, the better it is

Smith’s Purchasers

• you made a great deal and watched the market
• you paid $14,000 more and got $105,000 in benefits
• you were “ready to act” when the time was right

Brown’s Purchasers

• you failed to do the research, a simple “drive-by” the Smiths was not enough
• you have some immediate expenses (furnace and air conditioning) in the near future
• you failed to negotiate well, the Brown’s were vulnerable and would have sold for much less
• properties do not generally sell at 99% of list unless they are very well-priced

All in all, although everyone always says “location, location, location” when it comes to real estate, in these deals it was “timing” and “negotiating” that were the key factors.

And do you know what really made the difference? Mrs. Smith arranged for the assumable first. That was the motivation for her purchaser. That sold her property. The Brown property couldn’t sell while the Smith property was competition. So, really, that mortgage sold the Brown property too!

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Amid all the good news about the recovery of the Toronto and GTA Real Estate markets, I don’t want to be the one to dampen everyone’s spirits.

But, just as I was reporting some optimistic news in January in the midst of all the “doom and gloom” reporting, there are now some facts that should be taken into consideration by the marketplace.

The Toronto Real Estate Board publishes both monthly and semi-monthly statistics. In its public advisories, comparisons are drawn to the corresponding months in the previous years. That means that June of 2009, is compared to June 2008 and June 2007.

While that’s always interesting, you miss the current direction of the market. In addition, you can in fact discount significant world economic events like, a major stock market crash, a financial liquidity crisis, bankruptcies of some of the world’s largest companies, and a worldwide recession.

If, however, you track the numbers 26 times per year, you have a much better sense of the current direction.

Here’s the end of June 2009 public announcement from TREB:

“GTA Resale Housing Market Posts Best June on Record
TORONTO, July 6, 2009 – In June 2009, Greater Toronto REALTORS® reported a record 10,955 sales, up 27 per cent from June 2008. The seasonally adjusted annual rate of sales in June was 100,700.

The average price for June transactions was $403,972 – up by two per cent compared to the same month last year. “The re-emergence of seller’s market conditions has exerted upward pressure on home prices,” explained Jason Mercer, TREB’s Senior Manager of Market Analysis. “Look for sales to remain high relative to listings in the second half of the year. This will keep home prices growing.”

Let’s have look at the average prices:

$403,972…..30 June
$407,716…..15 June
$395,609…..31 May
$385,601…..30 April

So, TREB compares the $403,972 with the $395,866 from June 2008. In fact, that is a 2% increase. No real mention that the value went down to $343,642 in January of this year. There has been a 17.56% increase this year throughout the midst of a recession.

You will notice that the highest price level was achieved on 15 June 2009. That means the market is now on its way down. The peak has been reached and the direction is now down, not up.

Another market indicator is the volume of sales. Let’s have a look at the recent numbers:

In the first five months of the year, there were 30,657 transactions. Last year, there were 35,894 by the end of May. What does that mean? Actually, the deals are running behind. There is a pent-up demand. The first few months of the year were very slow. The sales were down by half in January, down by a third in February and off by one fifth in March. So, really by the end of May 2009, there were about 5,237 people who wanted to buy houses, who hadn’t done their deals.

TREB reports that there were 10,995 deals in June and that’s up 27% from June 2008. But, June 2008 was normal. The Spring market in 2008 was normal. The Spring market in 2009 was in the middle of a worldwide economic meltdown. Of the excess buyers, 2,355 did business in June.

The total sales in 2009 to the end of June were 41,612. Last year, there were 44,494. So, all things being equal (and, of course, they never are) in addition to the regular July buyers, there are another 2,882 potential buyers ready to do business. Unless the number of listings increase, this additional demand will place an upward pressure on prices. But remember, until now, many good properties had not been place on the market “for sale”. The reason was simple: they would not fetch a good price.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
905-796-8888
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

Ordinarily, one would think that chattels are not included in an agreement of purchase and sale concerning real estate. And, most of the time they would be right.

However, this is not the case when we are talking about the sale of a business. Under the Real Estate and Business Brokers Act the term “real estate” is defined to include real property, leasehold and business whether with or without premises, fixtures, stock-in-trade, goods or chattels in connection with the operation of the business.

Bob operated a small electrical contracting company. After 25 years in the business, he felt that it was time to retire. In addition to the 10 trucks all clearly marked “Bob’s Electric”, he had recently purchased a minivan. Bob used this vehicle to get to work. He acquired it right at the end of the year so that he could maximize the depreciation. Bob listed the business and negotiated an excellent price.

You might imagine his surprise when it came to the day of closing and his lawyer had prepared a Transfer of the minivan for him to sign. Bob said it was not part of the deal. There was nothing about the minivan in the agreement of purchase and sale. This was true!

His lawyer reviewed the agreement and said that the definition of “real estate” when it concerned the sale of a business included chattels. Since the minivan had been acquired and used in connection with the business, no matter how remote this connection might be, the minivan was deemed to be part of the deal. The obligation rested upon Bob to clearly exclude it, if that was his intention. It did not have to be written into the agreement to become part of the deal. Silence meant the minivan was part of the deal.

So, on closing the purchaser received an assignment of the lease, the stock-in-trade, the fixtures, the 10 trucks, and to his surprise, Bob’s brand new minivan that he drove to work.

In addition, there is one more little problem here worth mentioning. Bob was attracted to the minivan because of the zero percent financing spread out over five years. You guessed it! The agreement of purchase and sale conveyed the title to the assets “free and clear of all encumbrances”. So, out of the funds due on closing, Bob had to pay off the loan on the minivan in order that the purchaser would get clear title.

This little glitch arises in many business transactions, but most of the time neither the buyer nor the seller are aware, and no one asks about the minivan that the owner uses to get to work. There was some good news however. Bob had been thinking about buying a Mercedes.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
www.OntarioRealEstateSource.com

By Brian Madigan LL.B.

You might question the matter of loyalty when it comes to your real estate agent.

The basic common law of agency is the same whether we are talking about lawyers or real estate agents, and the duty of loyalty is one of the fundamental principles.

However, you must understand that there is a difference in degree. Loyalty goes to the heart of the solicitor-client relationship. It is the most basic and fundamental obligation. Whether or not there is any payment for service, a solicitor must be loyal to his client. He cannot prefer the interest of another over that of his client, since that would amount to a breach of the duty of loyalty. Not only that, he cannot engage in a conflict of interest. But here, the obligation is disclosure, and with the client’s full knowledge and informed consent, he might proceed. So, in part, conflicts of interest are somewhat negotiable. However, the duty of loyalty is not negotiable.

The same is not quite true when it comes to real estate agents. For the most part, real estate agents are expected to work for free. They get paid only when a deal is done.

So, in addition to the laws of agency, which include the concept of loyalty, there are other laws which apply as well. Some of these laws deal with the concept of “brokerage”. While a broker is in effect just one category of agent, the laws related to brokerage are much looser than might otherwise be considered to apply.(Here I am simply referring to the commom law and not any statutory laws)

A broker is an agent who is seeking a principal. That’s the original common law definition. The broker already has the product, the service, or the property or other item which is to be sold. All the broker needs is a buyer. In that regard, the broker offers to represent just about anyone who will pay the price. The broker usually calls those individuals with whom he has had prior dealings. The item is offered, and if not accepted, the broker offers the item to the next individual on the call list. It would be rather foolhardy for anyone who might be called by the broker, to refuse the purchase, yet complain that the broker had breached his obligation of loyalty if he were to call someone else.

Sometimes, the rules related to agency are somewhat difficult in their application. In Ontario, the Ontario Real Estate Association has gone to great lengths to help clarify the situation.

Where there is clearly no principal-agent relationship, the broker can move on to the next prospect. You might find an analogy here with brokers in the financial services sector. If a broker were selling $100 million in bonds today, he might start to call his client list. The first person who says “yes” gets the deal. Tomorrow, everyone will be called again. There is absolutely no expectation, once you have said “no” to the offering that the broker will either call you back or not offer it to someone else.

In circumstances in which the principal-agent relationship is documented, for example, by way of a Buyer’s Representation Agreement, then the duty of loyalty would be paramount. The agent cannot move on to the next prospect without running the risk of breaching the obligation of loyalty to the client.

There are two separate obligations:

1) the brokerage, and
2) the individual sales representative.

Although the brokerage can probably represent more than one client, a sales representative probably cannot. In fact, in the standard Buyer’s Representation Agreement (BRA), both the brokerage and the sales representative are permitted to act for more than one party. It seems reasonably fair when we are talking about the brokerage firm which may have several hundred agents, but it’s quite a different matter when it comes to your “own” agent.

The duty of loyalty arises at common law, and that obligation may still exist to some degree unless the client truly understands that it is not intended to apply. When agents explain the potential conflict of interest, they frequently refer to the brokerage firm and not themselves. The risk is that we may not have a truly informed client. If you remember the financial services analogy, all the participants were sophisticated and did business this way every day. When we are talking about a real estate transaction, frequently the purchaser will be a novice and have had no prior experience.

This duty of loyalty requires “disclosure” and that may come as a surprise to some agents. This duty arises in all (not just some) agency relationships.

So, what happens before the agent can move on to the next prospect:

1) the agency must be terminated,
2) the principal (client) must agree, or
3) the agency agreement must have contemplated multiple representation.

In my view, the simple “multiple representation” clause in the standard BRA is not sufficient for the sales representative. In most cases, it is sufficient for the brokerage, so why not the sales agent?

Let’s consider a case where a multinational grocery store chain engages a national brokerage firm to represent its interests. It wants to make sure that the brokerage firm is loyal to it. Naturally, it expects “first call” with respect to any locations which are appropriate for its needs. This loyalty obligation would apply to the brokerage and any of its local agents who are engaged on the project.

Let’s consider another case. This time a prospective buyer contacts an agent about a particular location. The agent knows nothing about this property. It is listed with another brokerage. But, on behalf of his client he makes some inquiries and soon becomes convinced that this is an absolutely terrific location. Can he take it to his other clients? No, he is under a duty of loyalty to his client. If the client does not want it or provides permission for the agent to market it to others, then the agent would be free to act. Otherwise, the duty of loyalty restricts the agent’s options.

Let’s consider one more situation. The agent is the first to discover the property. He offers or suggests it or even shows it to one of his clients. The first client demonstrates no interest, so he is free to move on. He is not under any obligation to seek this client’s consent. In effect, he is an agent without a principal. In the previous example, the clientwas the principal and had already found the property.

In summary, the rules related to the loyalty obligation under the law of agency can at times be difficult to understand and apply. But, in most cases they do make common sense. They should, they arise out of the common law.

Confusing or not, it’s not all bad, with increased duties and obligations comes increased professionalism.

Brian Madigan LL.B., Realtor is an author and commentator on real estate matters, Royal LePage Innovators Realty
www.OntarioRealEstateSource.com