Component 1 Module 2 MANAGING BROKER APC TOOLKIT. disclosure

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1 Component 1 Module 2 MANAGING BROKER APC TOOLKIT disclosure

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3 introduction table of contents Overview - Disclosure 1 Learning Outcomes 1 Interactivity 1 Assessing Your Knowledge 2 Resources 2 Part 1: The Why 3 Introduction 3 Learning Outcomes 3 Video: Introduction To Disclosure 3 Disclosure Obligations 4 Requirements under the Council Rules 4 Part 2: The How 6 Introduction 6 Learning Outcomes 6 Video: A Managing Broker's Perspective 6 Types of Disclosure 7 Disclosure of Remuneration 7 Acting for Buyers 9 Activity 1: Quiz: D isclosure of Remuneration 9 Disclosure of Material Information 10 Disclosure of Conflict of Interest 11 Activity 2: Online Discussion 12 Questions for Discussion 12 Disclosure of Material Latent Defects 14 Discovering Material Latent Defects 15 Patent Defects 17 Activity 3: Online Discussion 18 Disclosures Related to Licensee Exemptions 20

4 Managing Broker APC Toolkit Component 1 Part 3: The Tools 21 Putting Disclosure into Practice 21 Learning Outcomes 21 Disclosing Remuneration 21 Exclusive Buyer's Agency Contract 21 Disclosure of Remuneration Form (Trading Services) from the Council 22 Disclosure of Remuneration using the Multiple Listing Contract (MLS ) 22 Disclosing a Referral Fee 23 Disclosure that a Referral Fee is to be Paid 23 Receiving Referral Fees 23 Disclosure of Interest In Trade 23 Disclosure of Conflict of Interest 24 Designated Agent for Buyers 24 Designated Listing Agent 25 Disclosing Material Latent Defects - A Property Disclosure Statement 25 Property Disclosure Statement - Why is it important? 25 When is it Completed? 26 When is it Completed? 27 Frequently Asked Questions 29 Tools for Disclosure 32 Activity 4: Tools for Disclosure 32 Video 33 Summary 33 Gateway Assessment: Disclosure 33 Gateway Quiz: Disclosure 33 Conclusion 33 IV british columbia real estate association

5 introduction Welcome to Module 2: Disclosure! Overview - Disclosure In Module 1, you explored agency relationships and why it is necessary to create and document these relationships. The focus of this module is on disclosure. A full explanation of the main and most important disclosure rule, Section 5-10 of the Council Rules, was addressed in Module 1: Agency. In this module, you will explore the other disclosure requirements of a licensee, including disclosure of remuneration, disclosure of interest in trade, disclosure of material information to clients, disclosure of conflicts of interest, disclosure of material latent defects, and disclosure related to licensee exemptions. You will learn why these types of disclosures are important to you, your clients, and customers. You will learn how to manage risks associated with these disclosures. Like the Agency module you just completed, this module is divided into three parts to help you understand the complexities of disclosure: Part 1 The Why Disclosure Obligations Part 2 The How Types of Disclosure Part 3 The Tools Putting Disclosure into Practice LEARNING OUTCOMES Each of the module's parts contains the learning outcomes expected of you. The activities and quizzes in each part are designed to help you develop the knowledge, skills or abilities required to fulfill those outcomes, and will provide you with opportunities to see how well you are doing, as you proceed throughout the content. You will be able to revisit and review concepts that you may not have mastered as you proceed through the module. INTERACTIVITY This module is designed to be as interactive as possible. You will complete a variety of activities throughout the module, including analyzing and discussing case studies, completing online quizzes, engaging in online discussions, and finding information and documents on the Council's website. british columbia real estate association 1

6 Managing Broker APC Toolkit Component 1 ASSESSING YOUR KNOWLEDGE At the end of each part, you will complete Check Your Knowledge online, autoassessed quizzes that will help you to assess your progress, and will be monitored by your instructor so that he or she can provide guidance where needed. At the end of each part, you will complete a number of Check Your Knowledge autoassessed quizzes that will help you to track your progress. Your final module assessment, the Gateway Assessment, will test your knowledge of all the content of the module. Success in the Gateway Assessment will allow you to proceed to the next module, Contracts. Resources In this module, you will need access to: The Professional Standards Manual (PSM) The Council Rules Council's online resources, including: disclosure forms, and articles from various Council Newsletters. 2 british columbia real estate association

7 Part1 The Why Introduction This part of the module will focus on developing your understanding of the mandatory disclosure obligations required of licensees. LEARNING OUTCOMES When you complete this part, you will be able to: explain the mandatory obligations of a licensee as they relate to disclosure, identify the risk management issues involved in disclosure, and understand when and how to make disclosure to clients and customers. VIDEO: INTRODUCTION TO DISCLOSURE Play the following video in which Bruce Woolley from STIKEMAN ELLIOTT LLP, Barristers & Solicitors explains the importance of disclosure, and of the related mandatory obligation of disclosure, for a new licensee. Click on the icon below to play the video: Video One: Disclosure Obligations british columbia real estate association 3

8 Managing Broker APC Toolkit Component 1 Disclosure Obligations In this section, you will explore the mandatory disclosure obligations by reviewing the appropriate sections of RESA and the Council Rules. As a licensee in today's marketplace, you must be fully versed in your obligations of disclosure under RESA and the Council Rules. You must be aware of the requirements of different kinds of disclosure, and know how to apply them correctly. The importance of proper, timely disclosure cannot be overstressed. If you fail to fulfill your various obligations to disclose in accordance with the requirements of the Council Rules, you run the risk of being investigated by Council and of subsequent discipline if you are found to have committed professional misconduct. Reading: Duties to Clients REQUIREMENTS UNDER THE COUNCIL RULES Read Section 3-3 of the Council Rules. Part 3 of the Council Rules deals with "General Responsibilities of Licensees." Section 3-3 of the Council Rules deals specifically with "Duties to Clients", which include some obligations of disclosure. Pay particular attention to sections 3-3 (f) and (j) of the Council Rules, which mirror the common law fiduciary duties to make certain disclosures to your clients. (f) without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], disclose to the client all known material information respecting the real estate services, and the real estate and the trade in real estate to which the services relate; (j) without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], if a conflict of interest does exist, promptly and fully disclose the conflict to the client. Part 5 of the Council Rules deals with "Relationships with Principals and Parties." Division 2 of Part 5 of the Council Rules deals with the additional disclosures required of licensees. 4 british columbia real estate association

9 Part 1 The Why One of the most important things to remember is, pursuant to Council Rule 5-8(1): All disclosures must: (a) be in writing, except for disclosure under section 5-10 (b) [disclosure of representation and relationship in trading services] of these rules, and (b) subject to subsection (1.1), be separate from a service agreement or any other agreement under which real estate services are provided and separate from any agreement giving effect to a trade in real estate. Further, section 5-8 (2) of the Council Rules requires that if, during the course of providing real estate services, there is any substantive change in information, that you (the licensee) are required to promptly disclose that change to your client. Reading: Council Rules CHECK YOUR KNOWLEDGE QUIZ: PART 1 british columbia real estate association 5

10 Part2 The How Introduction Part 2, The How, will focus on developing your understanding of various types of disclosures and how to ensure you are able to meet the mandatory requirements for those disclosures. LEARNING OUTCOMES When you complete this part, you will be able to: explain the reason for disclosing remuneration, explain the reason for disclosing an interest in a trade in real estate, explain the reason for disclosure of material information to a client, explain the reason for disclosure of conflicts of interest to a client, explain the reason for disclosure of material latent defects, and identify disclosures relating to licensee exemptions. VIDEO: A MANAGING BROKER'S PERSPECTIVE Watch the following video in which Bruce Woolley from STIKEMAN ELLIOTT LLP, Barristers & Solicitors discusses various types of disclosures, and how, as a new licensee, you can ensure those requirements are met. Click on the icon below to play the video: Video One: A Managing Broker's Perspective 6 british columbia real estate association

11 2 Part The How Types of Disclosure In this Part, you will review the following types of disclosures: disclosure of remuneration; disclosure of interest in trade; disclosure of material information to clients; disclosure of conflict of interest; disclosure of latent defects; and disclosures related to licensee exemptions. Reading: Disclosure of Remuneration DISCLOSURE OF REMUNERATION Section 5-11 (2) of the Council Rules requires you to promptly disclose to your clients, in writing, the source and expected amount of your remuneration from each transaction. If there is a substantive change to the information previously disclosed, you must disclose the change. When acting on behalf of buyers, the amount of the cooperating brokerage's portion of the commission that you expect to receive from the listing brokerage must be disclosed to your clients, in writing, before they make an offer to purchase. This may be in the form of a percentage of the sale price, or a fixed amount. It will be necessary to explain to your clients that this amount may not be accurately determined until the final sale price is established and that the amount paid is the gross amount received by your brokerage, and not the amount paid directly to you. If you are working as a limited dual agent in the transaction, you will be required to disclose, in writing, to your clients, the total commission amount received by the brokerage through the transaction. As agents for the clients you represent, you are in a fiduciary position of trust; therefore you are required to disclose all monies received as part of the transaction. As a result of the principal and agent relationship, you have fiduciary obligations to your client, including an obligation to disclose any remuneration received from someone other than the client. If, in the process of representing a client, you expect to receive remuneration, directly or indirectly from someone other than your client, you must promptly disclose this to your client. However, if the person on whose behalf you are acting is not a client, but is a customer (remember the british columbia real estate association 7

12 Managing Broker APC Toolkit Component 1 distinction between client and customer as discussed in Module 1) you have no requirement to disclose remuneration. You don't act on behalf of a customer you provide information to a customer but you do not owe fiduciary duties to a customer. As a licensee, you must always keep in mind that it is the nature of your relationship with your client that creates the obligation to disclose all remuneration paid by someone other than your client. remember As a licensee, you may not receive any remuneration in advance of disclosing to, and getting the permission of, your client. The disclosure must be in writing (section 5-8(1)(a) of the Council Rules). It must be made promptly, and it must be on a separate document from the transaction document). This means you cannot rely solely on a disclosure made on the CPS. To comply with the requirements of written disclosure: The Council's Disclosure of Remuneration form may be used for each transaction. It is available on the Council's website at under the Forms tab at the top of the homepage. This form must be signed by the licensee making the disclosure (you) and by the person to whom the disclosure is being made (your client). Your client should be given a copy of the disclosure form. You may give the buyers a copy of the Multiple Listing Contract (MLS ), showing the commission offered upon the sale of the property. The buyers should initial a copy and keep it on file, in addition to the licensee retaining a copy for submission to their brokerage. As a licensee working for a buyer, you must disclose, in writing, any commission that you expect to receive from the cooperating portion of the commission offered by the listing brokerage. This obligation exists even if the client has entered into an Exclusive Buyer's Agency Agreement. If the buyers have agreed to pay you, the buyer's agent, a specific amount, provision is usually made for the deduction of any monies received from the sellers or the listing brokerage. The buyers would be responsible for any shortfall. The buyers and the licensee should discuss how this shortfall, if any, is to be paid. 8 british columbia real estate association

13 2 Part The How Acting for Buyers According to Council Rules, before providing trading services to any party, a licensee must disclose, among other matters, the nature of the representation the licensee will provide. In buyer agency, this process should include discussing: the cost of that service, including the compensation you will expect, the fact that some properties may be offered for sale which could meet the buyer's needs, but which do not offer sufficient compensation for your services, options that may be available to address such circumstances before they arise. For example: buyer agrees to sign an Exclusive Buyer's Agency Agreement that confirms the amount of compensation the buyer's agent will receive, buyer agrees whether such properties should be brought to their attention, and buyer will make up any shortfall to a pre-determined amount. Licensees should document, in writing, the nature of his/her relationship with his/her buyer. Activity 1: Quiz: Disclosure of Remuneration Disclosure of Interest in Trade Reading: Disclosure of Interest in Trade It is important to remember that, according to the Council:...all disclosures must be in writing, be separate from any agreement giving effect to a trade in real estate, and, with the exception of the disclosure of certain types of remuneration, be separate from the service agreement or any other agreement under which real estate services are provided. And, according to section 5-7 of the Council's Rules, an associate means a person who is any of the following: (a) In the case of an individual licensee, (i) a spouse or family partner of the licensee, (ii) 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 british columbia real estate association 9

14 Managing Broker APC Toolkit Component 1 licensee, spouse or family partner serves as trustee or in a similar capacity, or (iii) 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; If you acquire, directly or indirectly, or dispose of real estate, or if you assist an associate in acquiring, directly or indirectly, or disposing of real estate, section 5-9 of the Council Rules requires that you make a disclosure in writing to the other party before any agreement for the acquisition or disposition of the real estate is entered into. An example of an indirect acquisition applies where a licensee or associate acquires real estate through acquisition by a third party who subsequently disposes of the real estate to the licensee or associate. A licensee's obligation of disclosure of interest in trade applies in such circumstances. You should keep in mind that disposing includes both selling and leasing. Further, acquiring includes both buying and leasing. An exception to the obligation of disclosure applies only when the intention of the licensee, spouse or family partner of the licensee is to enter into a lease or an agreement to lease that is for personal residential purposes for a term not exceeding one year; the lease or agreement to lease does not contain an option to purchase or right of first refusal, and any option to extend or renew the lease does not extend beyond one year. The Disclosure of Interest in Trade must be made on the approved form, found on the Council's website. Reading: Disclosure of Material Information DISCLOSURE OF MATERIAL INFORMATION As a licensee, you have the obligation to advise your clients of all known material information respecting the real estate, the transaction, and the real estate services to be provided. What are the mandatory requirements that guide your actions in regard to this disclosure? In the RETS, and in the first module of this course, you learned that you owe a fiduciary duty to your clients. In relation to your duty to disclose, the courts have confirmed that the following principles apply: (a) A relationship between a real estate licensee and the person who has retained the licensee to sell his or her property is fiduciary and confidential; 10 british columbia real estate association

15 2 Part The How (b) There is a duty upon such a real estate licensee to make full disclosure of all facts within the knowledge of the licensee which would be likely to influence the conduct of the principal; (RETS manual, Chapter 5) Furthermore, section 3-3 (f) of the Council Rules states that you must: Sec 3-3 (f)... without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], disclose to the client all known material information respecting the real estate services, and the real estate and the trade in real estate to which the services relate;... DISCLOSURE OF CONFLICT OF INTEREST In your RETS, you learned how important it is to avoid conflicts of interest, whether actual or apparent: The public expects the licensees they engage to provide real estate services, to act in their best interest, putting the interests of the client ahead of those of the licensee. A licensee's obligation is recognized in common law and under the provisions of RESA and the Council Rules. The PSM describes possible conflict of interest situations, and either how to ensure those conflicts of interest are avoided, or when conflicts do arise, how a licensee must fully and promptly disclose any conflict to their client before continuing to act for that client. It is essential that licensees have the ability to recognize any situation in which there is actual or apparent conflict between the interests of a client and the interests of the licensee and take reasonable steps to avoid any conflict of interest. Reading: Conflicts of Interests Review Section 3-3 (i) and (j) of the Council Rules below: Sec 3-3 Subject to sections and 3-3.2, if a client engages a brokerage to provide real estate services to or on behalf of the client, the brokerage and its related licensees must do all of the following: (i) take reasonable steps to avoid any conflict of interest; (j) without limiting the requirements of Division 2 [Disclosures] of Part 5 [Relationships with Principals and Parties], if a conflict of interest does exist, promptly and fully disclose the conflict to the client. british columbia real estate association 11

16 Managing Broker APC Toolkit Component 1 Reading: Disclosure of Conflicts of Interests 12 british columbia real estate association

17 2 Part The How Activity 2: Online Discussion From the four scenarios below, choose two to discuss in the online discussion. SCENARIO 1 Fred, a licensee in Vancouver, wants to help his daughter and son-in-law purchase their first home. He loans them money for the down payment, and sells them one of the properties for which he is the seller's agent. He does not tell anyone of the relationship he has with the buyers (his daughter and son-in-law). SCENARIO 2 Mary is the buyer's agent for two different clients. She shows both clients the same property, and they are both interested in negotiating a purchase. Mary writes offers on the property for both clients. She does not discuss this with either buyer, or with her managing broker. SCENARIO 3 Patrick, the managing broker at XYZ Realty, discovers that one of the brokerage's licensees has listed her own property with the brokerage, she has an accepted offer without any written disclosure, and she has not disclosed this to him. SCENARIO 4 Heather is another licensee at XYZ Realty. Heather is representing both the buyer and the seller of a single property but she does not disclose this to either party. Questions for discussion: The key questions for any discussion of disclosure continue to be: 1. What mistake did the licensee make? 2. What section of the Council Rules is not being complied with, in regards to the conduct of the licensee? 3. What should the licensee have done? british columbia real estate association 13

18 Managing Broker APC Toolkit Component 1 To participate in this discussion, you must: Post your own thoughtful response to the question. Read and respond to at least 2 3 existing posts from your fellow learners. If, at the time you are checking the discussion, no one has posted a response yet, post your own and monitor the discussion until you can respond to others. Ensure that your responses are relevant, thoughtful and encourage discussion. Your instructor will monitor your participation. You will be assessed as Complete or Incomplete, based on the following criteria: category complete incomplete Content Post relates to content of the module and is relevant to the question posed. Insightful and appropriate. Incomplete post, not relevant to topic, insight vague or absent, may be inappropriate. Contibution Posts are limited to 400 words or fewer. Posts consist of independent entries and replies. Response Responds to at least 2 3 others. Responses are thoughtful and explain reasons for agreement/ disagreement. Post is much too short or much too long, not enough contribution in terms of entries and replies. Does not respond to 2 3 others. Responses do not indicate understanding of concept or questions. Does not offer explanation. Understanding Response indicates an understanding of concept or question asked. Response indicates no understanding of concept or question asked. 14 british columbia real estate association

19 2 Part The How Go to the online discussion by clicking "Discussions" in the Navigation Menu to the left of your browser window. Disclosure of Material Latent Defects As a licensee representing a seller, you must disclose in writing, to the buyer, all known material latent defects respecting the seller's property, promptly and before any contract is entered into, if the defect has not already been disclosed, in writing, by the seller. Section 5-13 of the Council Rules defines material latent defects: Sec (1) Disclosure of latent defects. For the purpose of this section: material latent defect means a material defect that cannot be discerned through a reasonable inspection of the property, including any of the following: (a) a defect that renders the real estate (i) dangerous or potentially dangerous to the occupants (ii) unfit for habitation, or (iii) unfit for the purpose for which a party is acquiring it, if (A) the party has made this purpose known to the licensee, or (B) the licensee has otherwise become aware of this purpose (b) a defect that would involve great expense to remedy; (c) a circumstance that affects the real estate in respect of which a local government or other local authority has given a notice to the client or the licensee, indicating that the circumstance must or should be remedied; (d) a lack of appropriate municipal building and other permits respecting the real estate. Section 5-13 (2) of the Council Rules also states that the disclosure of a material latent defect must be made promptly, prior to entering into an agreement for a trade in real estate. Sec (2) A licensee who is providing trading services to a client who is disposing of real estate must disclose to all other parties to the trade, promptly but in any case before any agreement for the acquisition or disposition of the real estate is entered into, any british columbia real estate association 15

20 Managing Broker APC Toolkit Component 1 material latent defect in the real estate that is known to the licensee. Section 5-13 (3) of the Council Rules states that if a client instructs a licensee to withhold a material latent defect, the licensee must refuse to provide further trading services on behalf of the client. Sec (3) If a client instructs a licensee to withhold a disclosure required by subsection (2), the licensee must refuse to provide further trading services to or on behalf of that client in respect of the trade in real estate. Examples of possible material latent defects include: The plumbing of the house is not properly insulated and it is known that the pipes frequently freeze and burst in the winter. This is something that would not be reasonably detectable until winter. A seller has finished the basement of a house and in the process has covered a large crack in the basement wall that may affect the structure. A seller has finished the basement of a house, or constructed an addition to a house, or built a garage, and has not obtained the appropriate approvals or permits, and the licensee knows this. A seller's house leaks whenever it rains. The seller knows repairs are necessary, but fails to disclose the defect. The fact that a home was used as a former marijuana grow-op could be a material latent defect, depending on the degree to which the property has been remedied. Discovering Material Latent Defects The general rule regarding the sale of property is caveat emptor (let the buyer beware) and buyers are under a general duty to inspect the property for defects before entering into a purchase agreement, or to make provision for inspection in the agreement. However, an inspection is often not sufficient to detect certain deficiencies in the product that can only be discovered through destructive testing or other means that a seller could not reasonably be expected to allow under normal conditions. For example, wood beams and interior brickwork often cannot be fully assessed without destructive testing, and it would be unreasonable for the seller to allow the buyer to remove drywall or dismantle structures. The Real Estate Council of British Columbia states in the PSM: 16 british columbia real estate association

21 2 Part The How (l) Disclosure of Material Latent Defects At common law, a seller, and correspondingly, a seller's agent, must disclose all known material latent defects. A latent defect is one that is not visible upon ordinary inspection, but which materially affects the property's use or value. On the other hand, a patent defect is one that is readily visible and/or obvious upon ordinary inspection. A patent defect may also materially affect the property's use or value. Further, section 5-8 of the Council Rules requires that disclosure to be in writing and separate from any agreement under which real estate services are provided and separate from any agreement giving effect to a trade in real estate. A licensee is not required to disclose a known material latent defect to a buyer if the seller has already disclosed all known material latent defects, in writing, to the buyer. For example, disclosing the material latent defect on the Property Disclosure Statement (PDS) may now satisfy the requirements of the Council Rules, as long as that disclosure is provided prior to entering into any agreement giving effect to a trade in real estate. Timing of the disclosure is critical. Written disclosure of all known material latent defects must be provided to the buyer before there is an accepted offer. This applies whether the PDS, or some other document is to be used to disclose these defects. A licensee acting for the seller must ensure that the written disclosure of the material latent defect was provided to the buyer prior to the acceptance of the offer by the seller. Licensees should include the following clause in the Contract of Purchase and Sale whenever a material latent defect is disclosed. Disclosure of Material Latent Defect Clause The buyer acknowledges having received separate written disclosure of a material latent defect relating to (general reference to issue) Licensees must keep in mind that trading services includes offering real estate for rent or lease. As a result, written disclosure of a material latent defect is required regardless of whether the real estate is offered for sale or for rent or lease. And note: Section 5-13 of the Council Rules also provides that if the client instructs the licensee not to disclose the material latent defect, the licensee must refuse to provide further trading services to the client in respect of the trade in real estate. british columbia real estate association 17

22 Managing Broker APC Toolkit Component 1 Patent Defects While you are not required to disclose patent defects, it is important that you understand what they are, and how they differ from latent defects. According to the RETS manual:... patent defects are facts that are visible to the eye, or which are necessarily implied by something which is visible to the eye, and which the purchaser should have discovered by a reasonably careful inspection of the property. Examples of patent defects could include: a mouldy wall due to leaking pipes, water stains on the ceiling. These are things that are typically discovered during a viewing of the property, or through a subsequent inspection by a property inspector. As a licensee working with a buyer, you should discuss patent defects to ensure that the defects have been noted by the buyer and then he/she can decide if he/she wants to investigate the cause of the defects or the costs to remedy the defects. Due to the onerous consequences of caveat emptor, buyers should be encouraged to have properties they are considering purchasing inspected by qualified professionals. 18 british columbia real estate association

23 2 Part The How Activity 3: Online Discussion Follow the links below to read the two articles from the Report from Council newsletter related to disclosure of material latent defects. For each article, consider the implications for you as a licensee. In your responses, reference the PSM Section 2 (1) Disclosure of material latent defects. ARTICLE 1: Asbestos Awareness is a Licensee's Responsibility This article discusses the very important issue of what to do if you find asbestos in a property. ARTICLE 2: "Stigmatized" Properties The second article discusses what might be considered stigmatized properties by many. Go to the online discussion and explore the following questions: Which of the conditions described in the articles requires disclosure of material latent defects? What are the responsibilities of the licensee in each case? To participate in this discussion, you must: Post your own thoughtful response to the question. Read and respond to at least 2 3 existing posts from your fellow learners. If, at the time you are checking the discussion, no one has posted a response yet, post your own and monitor the discussion until you can respond to others. Ensure that your responses are relevant, thoughtful and encourage discussion. british columbia real estate association 19

24 Managing Broker APC Toolkit Component 1 Your instructor will monitor your participation. You will be assessed as Complete or Incomplete, based on the following criteria: category complete incomplete Content Post relates to content of the module and is relevant to the question posed. Insightful and appropriate. Incomplete post, not relevant to topic, insight vague or absent, may be inappropriate. Contibution Posts are limited to 400 words or fewer. Posts consist of independent entries and replies. Response Responds to at least 2 3 others. Responses are thoughtful and explain reasons for agreement/ disagreement. Post is much too short or much too long, not enough contribution in terms of entries and replies. Does not respond to 2 3 others. Responses do not indicate understanding of concept or questions. Does not offer explanation. Understanding Response indicates an understanding of concept or question asked. Response indicates no understanding of concept or question asked. Go to the online discussion by clicking "Discussions" in the Navigation Menu to the left of your browser window. 20 british columbia real estate association

25 Part 3 Disclosures Related to Licensee Exemptions Go to the Council Rules and carefully read Part 9 of the Council Rules dealing with licensee exemptions. Remember, these are very narrow exemptions. Once a licensee, always a licensee, except where these narrow exemptions apply. Section 2(2) of RESA discusses the application of the Act. Application of Act Sec. 2 (1) This Act applies to every person who provides real estate services to or on behalf of another for or in expectation of remuneration. (2) In addition but subject to the rules, this Act applies to every licensee who provides real estate services, even if the licensee (a) provides real estate services on the licensee's own behalf, (b) provides real estate services to or on behalf of another but not for or in expectation of remuneration, or (c) would otherwise be exempted by this Act or the regulations from the requirement to be licensed in relation to the provision of those real estate services. CHECK YOUR KNOWLEDGE QUIZ: PART 2 british columbia real estate association 21

26 Managing Broker APC Toolkit Component 1 Putting Disclosure into Practice The Tools This part of the module is the most applied and practical, and is designed to give you some practice at determining the best tools and resources to use in disclosure. You will analyze a scenario fraught with disclosure issues, and then you must identify the correct procedures for ensuring that the appropriate disclosures are made. There is no online discussion for this part of the module. You will, however, be able to use what you have learned throughout the Why and the How parts to complete the activities in this part. LEARNING OUTCOMES When you have completed this part of Module 2: Disclosure, you will be able to: choose appropriate tools and resources for providing disclosures, analyze situations and identify disclosure issues, and describe correct procedures for correctly dealing with a variety of disclosures. Disclosing Remuneration Section 5-11 of the Council Rules requires a licensee to promptly disclose to the client, and the licensee's brokerage, any remuneration received in a trade of real estate that is not paid by the client. The required forms and how they are used is just as important as the disclosure itself, and can be used in the following ways: EXCLUSIVE BUYER'S AGENCY CONTRACT: This contract can be used to disclose the amount of commission a licensee and his or her brokerage is to receive in a transaction. Where the commission is paid directly by the buyer, no further disclosure is required. However, if all or part of the commission is paid to the buyer's agent by the listing brokerage by way of a cooperating brokerage commission, or directly by the seller through a Fee Agreement, then one of the following two forms can be used to reflect this difference. DISCLOSURE OF REMUNERATION FORM (TRADING SERVICES) FROM THE COUNCIL 22 british columbia real estate association

27 Part3 The Tool This form provides for the disclosure of remuneration to be made to a particular client for services provided for in the trade in real estate, or for recommending or referring an individual/organization in relation to the trade in real estate. This form identifies the source of the remuneration, as well as the total amount (a dollar figure or method of calculation of the amount) that the brokerage is to receive, as well as the signatures of both the licensee and the client acknowledging the disclosure. remember That if you are acting as a limited dual agent, then the amount disclosed must reflect both the listing and cooperating commission offered in the transaction. The form also identifies the specific property for which the disclosure is being made. Therefore, should the client wish to make an offer on another property, a new Disclosure of Remuneration form would have to be filled out. Disclosure of Remuneration using the Multiple Listing Contract (MLS ): Another acceptable method of disclosing remuneration for services to a client provided in the trade of real estate is having the client sign/initial and date the Multiple Listing Contract (MLS ) listing contract for a current listing, on which the client wishes to present an offer. This contract can contain either the dollar amount of the commission, or the method of calculation for that commission. You must ensure that this is done prior to entering into any agreement for the trade in that specific real estate. Of course, if a referral fee is involved in this transaction, a Disclosure of Remuneration form would be required to identify the source and amount related to that referral fee. british columbia real estate association 23

28 Managing Broker APC Toolkit Component 1 Disclosing a Referral Fee DISCLOSURE THAT A REFERRAL FEE IS TO BE PAID Section 3-3(f) of the Council Rules requires a licensee to disclose to a client "all known material information respecting the real estate services" being provided. If a licensee has agreed to pay a referral fee, that is a material fact which must be disclosed to the client. This is true whether the referral fee is to be paid to a licensee or to an unlicensed person. RECEIVING REFERRAL FEES Section 5-11 of the Council Rules requires a licensee to disclose in writing to a client any remuneration the licensee anticipates receiving that is not to be paid directly by that client. Therefore, if a licensee is to receive a referral fee for referring a client to another service provider, be that another licensee or another person providing services related to real estate (e.g., a mortgage broker, appraiser, etc.), the licensee is required to disclose to the client the details of this referral. Those details include: the source (who is paying the referral fee); the amount, or if the amount is unknown, the likely amount or method of calculation of the amount; and any other relevant facts related to the referral fee. Remuneration is a very broadly defined term, and includes any form of benefit, whether it be money or otherwise (e.g., mortgage points). All referral fees, benefits, and other forms of remuneration must be received through the brokerage with which the licensee is engaged. For further information on disclosing a referral fee, please check out the "Paying and Receiving Referral Fees" found in the PSM. DISCLOSURE OF INTEREST IN TRADE When you have a financial interest in the trade of real estate, you must make disclosure with the Disclosure of Interest in Trade form. This form has five parts. PART A This section identifies the party to whom the disclosure is being made, the address and legal description of the property in the transaction, and whether you are acquiring or disposing personally, or whether you are providing trading services to an associate, who is acquiring or disposing of the real estate. 24 british columbia real estate association

29 Part3 The Tool PART B PART C PART D This section is used when the licensee or associate is acquiring the real estate. It allows for the identification of whether the real estate is to be held or resold. If it is to be resold, the terms of the resale must be disclosed, if known. This section also requires identification of whether a licensee or associate is acquiring the real estate as a tenant, and if the licensee or associate intend to sublet the real estate, along with the terms of that sublease. Finally, this section requires the disclosure of any commission earned or anticipated in the transaction. This section merely requires identification of whether the licensee or associate is an owner or tenant of the real estate. This section requires both the person making the disclosure, and the person receiving the disclosure to sign and date an acknowledgement of such disclosure. The final section of the form requires the managing broker of the licensee, involved in the trade of real estate, to acknowledge receipt of the executed Disclosure of Interest in Trade Form. DISCLOSURE OF CONFLICT OF INTEREST Licensees need to make their clients aware of any conflicts of interest before they enter into written agreements. Below are two examples and possible ways of documenting a conflict of interest in writing. Should a licensee be in a transaction in which they are representing two buyers in writing an offer on the same property, at the same time, this is a conflict of interest. It requires disclosure to each of the buyers involved. This disclosure should include a discussion of all of the clients' options, including terminating the agency relationship; ceasing to act for all but one of the interested parties; and, continuing to act with the consent of the parties. If the parties have consented to the agent continuing to act despite the conflict of interest, the disclosure might take one of the following forms. DESIGNATED AGENT FOR BUYERS If a licensee is the designated agent of more than one buyer interested in the same property at the same time, this conflict of interest would require the licensee to have each buyer consent and sign a Limited Dual Agency Agreement Consent to Designated Agent Acting for Competing Buyers/Tenants form. This provides consent for the designated agent to continue to act for both buyers, subject to the limitations set out in the Limited Dual Agency Agreement. If one or both of the buyers did not consent, the licensee should discuss the situation british columbia real estate association 25

30 Managing Broker APC Toolkit Component 1 with his or her managing broker. One solution may be to refer one of the buyers to another brokerage. DESIGNATED LISTING AGENT Should the licensee be the designated agent for the seller, as well as for the buyer, a conflict of interest would arise in acting for both the seller and the buyer in a transaction. In order to be able to continue to act for both the seller and the buyer in the transaction, the designated agent would need the consent of the seller by his/her signing of a Limited Dual Agency Agreement Consent to Designated Agent Acting for both Buyer/Tenant and Seller/Landlord. If the seller does not consent to a Limited Dual Agency Agreement, the licensee would continue to represent the seller, and refer the buyer to another agent. A word of caution regarding continuing to act in conflict of interest scenarios is required, as it is difficult to satisfy your fiduciary duties in these situations. The courts are unlikely to be sympathetic to a licensee who fails to protect one of their clients' interests in a conflict of interest scenario. Your managing broker should always be consulted prior to becoming involved in this type of transaction. Disclosing Material Latent Defects - A Property Disclosure Statement The Property Disclosure Statement (PDS) is a written record of representations made by the sellers about the property, although in some instances a seller may choose not to complete a PDS. According to the RETS, "the PDS provides a written record which enables vendors to establish what information they disclosed and purchasers to establish what information was withheld, at the time of making the contract of purchase and sale." The PDS is a starting point for the buyers to begin their own investigations. Property Disclosure Statement - Why is it important? According to section 5-13 of the Council Rules, any known material latent defect must be disclosed in writing to the buyers prior to entering into any agreement for a trade in real estate. The common law also requires disclosure of latent defects. The PDS can be an effective form for making such disclosure. If a seller is in doubt as to whether they should complete a PDS or regarding their obligation to disclose material latent defects, a licensee should advise 26 british columbia real estate association

31 Part3 The Tool the seller to seek independent legal advice, in accordance with section 3-3(d) of the Council Rules. If a licensee makes a representation it must be accurate and reliable; Section 3-3 (h) of the Council Rules requires a licensee to use reasonable efforts to discover relevant facts respecting any real estate that the client is considering acquiring. The seller must, by law, disclose to the buyer any known material latent defects in the property. Even an agreement by the buyer to accept the property in an "as is, where is" condition does not relieve the seller or licensee from disclosure of any known material latent defects to the buyer or the buyer's designated agent, before they enter into a CPS. Section 5-13(3) of the Council Rules requires that if a seller instructs a licensee to withhold disclosure of known material latent defects, the licensee must refuse to provide further trading services to or on behalf of the client. Written disclosure by the sellers ensures clear communication to the buyers regarding the condition of the property, providing a buyer with a starting point for undertaking their due diligence on a property, before committing to the purchase. PDS forms, while not mandatory under RESA, assists sellers and licensees in providing information about the property, and in particular, disclosure of known defects. WHEN IS IT COMPLETED? Seller: The PDS is normally completed and signed by the sellers at the time the listing is taken. Some licensees provide a copy of this document at showings and at open houses; however, it is typically given out at the time of an offer, or after acceptance. If used to provide disclosure of a material latent defect, it must be given out prior to receiving an offer. Some sellers only fill out the PDS at the time of the offer presentation. This ensures that the information in the PDS is current. However, the buyers have not had the benefit of the declaration prior to writing an offer. It would, therefore, be prudent, if acting for the buyers, to make the offer conditional upon the buyers finding the information satisfactory. Latent defects, in accordance with Section 5-13(2) of the Council Rules must be disclosed prior to acceptance thus receiving the PDS after acceptance, as a subject condition, does not suffice. british columbia real estate association 27

32 Managing Broker APC Toolkit Component 1 Council suggests, in the PSM, that the following clause should be inserted in the CPS in this situation: BUYER APPROVING THE PROPERTY DISCLOSURE STATEMENT CLAUSE Subject to the Buyer on or before (date) approving the Property Disclosure Statement dated (date) with respect to the information that reasonably may adversely affect the use or value of the property. This condition is for the sole benefit of the Buyer. If approved, such statement will be incorporated into and form part of this contract. If a PDS is used, it is important that the seller, and not the licensee, fill out the PDS. The seller should initial his or her responses and not use a check mark. The seller should initial the boxes at the bottom of each page and sign the bottom of the last page. If the seller wishes the listing to be placed on MLS, he or she will have to submit a completed PDS to his or her licensee. If the seller cannot, or refuses to complete the form, a diagonal line should be drawn across both pages of the form. This will be considered a 'completed' form for the purposes of MLS. This will also signal to the buyers that the seller is most likely not in a position to complete the form for reasons such as: the seller may never have lived on the property or the property is under foreclosure/court-ordered sale, or it is an estate sale. In situations such as these, the seller should initial the boxes at the bottom of page one and sign the bottom of page two indicating his or her non-acceptance of this request. A sentence explaining why this is the case may help concerned buyers proceed. A licensee should review the information page with the seller to ensure that he or she understands that this form may eventually form part of the CPS. WHEN IS IT COMPLETED? Buyer: Given that the PDS is widely used, a buyers' licensee would fail in their duty to the buyers if he/she did not inquire if a PDS exists, and if so, to obtain and provide a copy of it to the buyers. Buyers must still make their own enquiries regarding the property, particularly in areas where the sellers may not have knowledge. 28 british columbia real estate association

33 Part3 The Tool Licensees should be able to refer buyers to resources that can provide further information or knowledge; Over half of the statements on the PDS begin with, "Are you aware..." or "To the best of your knowledge..."; Even when the sellers respond with a "No" to any of the questions, it does not mean that there are no or that there have not been any problems. For example, if there were water problems in the past but the seller thinks they have been repaired, the seller is allowed to answer "no". However, that does not mean that there were never any water problems, or that they will not happen again in the future. If the buyers, after reviewing the PDS, are satisfied with the information and wish to write an offer on the property, the CPS should contain the following wording: The attached Property Disclosure Statement dated is incorporated into and forms part of this Contract. Buyers may choose to make the contract subject to them receiving, accepting, and approving the information contained in the PDS. A PDS incorporated into a CPS is not sufficient disclosure in cases of a material latent defect unless disclosure of the material latent defects was also provided prior to the agreement being entered into. The PDS may be included as part of the CPS, although licensees acting as the buyers' designated agents should remind their clients of the general nature of the representations being made in the PDS. For example, by attaching the PDS to the contract the seller is not warranting that there is nothing wrong with the roof; just that the seller is not aware of any problems with the roof. All buyers who are party to the contract must also sign and date the bottom of the PDS, in order that it may form part of the contract. note The buyer should be encouraged to also request additional information or arrange independent inspections and check with municipal offices, themselves if and where necessary. british columbia real estate association 29