When acting for both a seller and a buyer, what duties does a real estate agent owe to his or her clients if a property disclosure statement, known as a Seller Property Information Sheet (SPIS) in Ontario, is signed? This was the central issue that the Court of Appeal addressed in Krawchuk v. Scherbak in 2011.
A SPIS is a standard document that can be filled out by a seller and used by the seller’s real estate agent in the course of selling real property. This form contains information concerning any defects, renovations and other important information of the property that is within the seller’s knowledge. While this form is optional, the seller might need to fill it out when the demand for the property is low and/or a buyer requests it.
In this case, the sellers, Timothy and Cherese Scherbak, completed a SPIS with the help of their real estate agent, Wendy Weddell. The SPIS indicated that the Scherbaks had a structural problem of settlement in the past but that they did not have any further settlement in 17 years.
A buyer, Zoriana Krawchuk, attended the Scherbaks’ open house, where she asked Weddell to represent her in acquiring the property. Following the open house, Krawchuk asked Weddell about a number of visible defects, including the sloped floors that indicated settlement. Weddell reiterated what had already been indicated on the SPIS.
Relying on Weddell and the SPIS, Krawchuk made a “no conditions” offer that the Scherbaks accepted. Later on, Krawchuk discovered that the house was settling. Both Krawchuk and the Scherbaks sued Weddell. The trial judge dismissed the claims against Weddell. Krawchuk appealed.
The Court of Appeal found that Weddell was negligent in her representations of both Krawchuk and the Scherbaks.
The Court of Appeal held that to avoid liability in negligence, a real estate agent must exercise the standard of care that would be expected of a reasonable and prudent agent in the same circumstances. What is reasonable and prudent will be determined by looking at industry practice, customs and statutory or regulatory standards. Where a debate arises as to how a reasonable agent should have conducted himself or herself, litigants should present expert evidence to assist the court to resolve the debate.
Despite not having expert evidence, the Court of Appeal found that Weddell had breached the standard of care owed to Krawchuk and thus was negligent in representing her. Weddell was required to verify the accuracy of the Scherbaks’ representations because:
- Weddell knew that the house was underpriced because it had a history of settlement problems;
- Weddell’s visual inspection of the property disclosed settlement problems, the manifestation of which was sufficiently significant that it prompted her to further question the Scherbaks. The Scherbaks reiterated what was already indicated on the SPIS. Weddell made no further inquiry at all of the Scherbaks as to what precisely they knew about the settlement problem, including how they believed them to have been fixed;
- Weddell testified that while she did not notice any signs of any recent settlement, such as fresh paint, she was not a home inspector and thus had no expertise to address the evidence of settlement; and
- Additionally, Krawchuk specifically asked Weddell for reassurances with respect to the issue of settlement.
The Court of Appeal found that Weddell had good reasons to look behind the Scherbaks’ representations. Alternatively, Weddell should have recommended, in the strongest terms, that Krawchuk get an independent inspection either before submitting an offer or by making the offer conditional on a satisfactory inspection. Since Weddell failed to take either of the two steps, which a prudent agent should have taken in this case, she was found to be negligent in her representation of Krawchuk.
The Court of Appeal also found that Weddell had breached the standard of care owed to the Scherbaks and thus was negligent in representing them. Since Weddell played a role in the completion of the SPIS, she must have exercised reasonable care and skill in ensuring its accuracy.
Weddell had to emphasize to the Scherbaks the importance of providing information that was complete and accurate.
The Scherbaks specifically sought Weddell’s advice about answering the question on the SPIS concerning the settlement. At the very least, Weddell had an obligation to question the Scherbaks further about their experience with the settlement issues (i.e. whether they had performed any work on the house that shed light on the state of the foundation of the house) and then appropriately counsel them regarding the consequences of the representations they made in the SPIS. The failure to take these steps amounted to a breach of the standard of care that Weddell owed to the Scherbaks and the finding of the agent’s negligence in the representation of the Scherbaks.
In summary, as an agent, it is very important that you do not simply rely on the information contained in the SPIS or what your client has advised you. While an agent won’t be held to the same standard as an inspector, there will be an expectation that he or she conduct some level of independent investigation to confirm the accuracy of information provided or information that has been withheld.