Sunday, January 8, 2012

Due Diligence Verification in Real Estate Listings

The “Due Diligence” Verification

Ontario Real Estate Source

By Brian Madigan LL.B.

Real estate professionals are obligated to conduct their own due diligence when taking a listing. That is part of their “professional responsibility”.

They owe that obligation to their clients, themselves and the public.

Here is an excerpt from the RECORD a publication of the Real Estate Council of Ontario (RECO), the governing body, on this very same point, made in its Fall 2011 issue:

“Verifying statements and facts when listing a property

What would happen in a situation where your listing boasted “hardwood under carpets” only to have the buyers find laminate or a buyer who thought the purchase of his or her home included a water heater only to find out it is a leased unit?

“As a registrant you have a legal obligation to make inquiries, investigate and ensure that the information you are providing in a listing is accurate.

It’s not enough to take the information a seller gives you at face value,” advises Registrar Allan Johnston.

There are a number of sections in both the Real Estate and Business Brokers Act 2002 (REBBA 2002) and the Code of Ethics that can be applied to a situation where a registrant has not fulfilled these obligations. Section 37 of the Code of Ethics prohibits registrants from knowingly making inaccurate representations, while Section 38 requires registrants to use their best efforts to prevent error, misrepresentation, fraud or unethical practice.

Section 37 of REBBA 2002 also prohibits registrants from making false, misleading or deceptive statements in published materials.

Depending on the nature of the circumstances, Sections 20 and 21 of the Code of Ethics which relate to seller property information statements and material facts may also apply.

So how can you ensure that you’re doing your due diligence? “Put yourself in the position of a prospective buyer and ask all of the questions you would want to know about the property,” adds Johnston.

Based on frequent inquires and complaints made to RECO, here are some tips to help ensure you’re fulfilling your professional obligations.

• Take measurements yourself, including calculating total square footage. Don’t rely on a builder’s plan, homeowner’s measurements, a previous listing, or tax assessment to be accurate.

• Ask sellers to provide a copy of a tax assessment role.

• If there is any question of road/shore allowances, ask the seller to provide a  survey or documents from the municipality verifying any allowances.

• Double check whether heating and cooling systems and water heaters are leased, rented or owned. Make sure you and the sellers understand the differences between a rental agreement and a lease agreement and the associated obligations.

• When highlighting new or upgraded features such as roofs, windows, doors, HVAC systems etc., make sure to verify the date of installation and the material that distinguishes them as an upgrade.

• When advertising a wood floor under carpet, make sure to check that there is indeed a wood floor. Understand and differentiate between hardwood, engineered wood and laminate flooring.”


Many real estate sales representatives will often say that if the seller lies to them, there is nothing they can do.

But, is that the law?

Do they have any additional responsibilities to others? First, this IS a regulated industry! RECO is charged with the responsibility of ensuring that the public interest is protected. That means ensuring the those who are registered meet certain professional standards.

So, while the seller may try to lie, cheat or deceive the public, the sales representative is there to make sure that they don’t.

That offers protection to the public, and instils overall confidence in the system. Lying and cheating sellers will just have to go another route. They won’t be able to thwart the system and use a registered real estate representative for their own purposes.

They can go the “FSBO” route (for sale by owner). There’s a discount in that market, despite what some home sellers believe, and it is based upon the fact that you can’t have the premium that would be attached to a “listed” property.

A listed property has more value, since a qualified, registered professional has already conducted their own “due diligence”. And, naturally, the property has passed the “smell test”*.

So, if you are a real estate professional, be sure to do your job carefully, in order to protect:

1)     your client,
2)     the public, and
3)     yourself.

* note: smell in the context of “smell test”, means no fraud, no lies, no deceit and no suspicion; it does not mean smell in the sense of noxious odours.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888