Disclosure. Have we mentioned this lately?

by Paul Cowhig, Advisor, Professional Standards

I love this. It’s a quote from the Real Estate Council’s Professional Standards Manual.

“As a licensee, like all members of the public, you have a right to buy and sell real estate.”

Wow, that’s a relief! Then it goes on, “However, because of your status as a licensee, you are required to do certain things that unlicensed members of the public are not.”

The truth is, we have the inside track when it comes to buying and selling real estate. We know things the average consumer doesn’t. We have access to information they don’t. We have the advantage of our massive experience with the process of buying and selling that the average consumer wouldn’t likely acquire in two lifetimes.

So we need to ensure that, in any transaction any one of us may be involved in, the other party knows they are dealing with a professional and not just a typical buyer or seller. As such, our obligations for transparency and disclosure are essential.

Interestingly, the two authorities we look to for rules on transparency and disclosure have somewhat different ideas about the scope of disclosure required. This is real estate after all, where nothing is ever simple.

The Real Estate Council of BC has a Disclosure of Interest in Trade Form to cover this issue. Council says you have to disclose your relationships to ‘Associates:’

Section 5-7 of the Council Rules defines ‘‘associate’’ as follows: a spouse or family partner of the licensee, a trust or estate in which the licensee, or a spouse or family partner of the licensee, has a substantial beneficial interest, or for which the licensee, spouse or family partner serves as trustee or in a similar capacity, or a corporation, partnership, association, syndicate or unincorporated organization in respect of which the licensee, or a spouse or family partner of the licensee, holds not less than 5% of its capital or is entitled to receive not less than 5% of its profits;

CREA’s language is a bit different. Its REALTOR® Code and Standards of Business Practice says a REALTOR® cannot buy or sell an interest in property, directly or indirectly, for themselves or any member of his/her immediate family, unless there is full and complete disclosure. Here is its definition of family:

IMMEDIATE FAMILY means a spouse, son, daughter, parent, brother or sister and includes persons who are in such categories because of marriage, common law relationships, or adoption as well as entities in which such persons have any direct or indirect financial interest.

That’s a big family!

The key highlights to bear in mind for disclosures in trade are these:

1) If you are involved in any transaction for yourself or ‘associate’ or ‘immediate family,’ you must disclose that you are a licensee. Using CREA’s definition of ‘associate’ will capture all the relationships requiring disclosures, including Council’s.

2) You must disclose these facts, in writing, separate from the agreement, giving effect to the trade in real estate, and prior to the presentation of any offer. This written agreement must be signed by and copies given to all parties, as well as your brokerage.

3) To meet Council requirements, the disclosure must be on Council’s disclosure form. The FVREB does not have its own form so using Council’s form makes practical sense to use in all cases.

Another key point from Council critical to keep in mind is this:

“In addition, licensees should be aware that their Real Estate Errors and Omissions Insurance Indemnity Plan excludes coverage for licensees when they are either buying or selling real estate.”

The exclusion reads as follows:

“This indemnity plan does not apply to: 9. a claim relating to or arising from providing real estate services in a transaction where the Insured or the Insured’s spouse, or a firm or corporation more than 10% owned separately or in combination by the Insured and the Insured’s spouse, has or may acquire an ownership interest;”

The hallmark of any professional organization is to have a higher standard than the strict letter of the law. This not only helps build trust in our clients, it advances our reputation as professionals, which means everything.

I’m always interested to hear your comments on this or on any other topic. Email me at paul.cowhig@fvreb.bc.ca or by calling 604-930-7606.