Stigmatized real estate listings:

 Are disclosure rules fair on homes that were grow-ops?

homes that were grow-ops?

MONTREAL — The basement of the six-bedroom cottage is exceptionally cheerful,  with its hardwood floors, playroom filled with children’s toys and full-length  mirror.

But despite $65,000 in renovations, along with generally favourable findings  from air-quality and home inspectors, the basement remains a source of fear for  potential buyers. It’s because of the basement that the West Island home — listed at more than $67,000 below its $817,000 city evaluation — has yet to be  sold.

In 2007, the cottage’s former tenants used the basement for about two months  to grow marijuana plants, listing broker Steven Barrett said. While the damage  is said to have been fully repaired, the home continues to bear the stigma of a  former grow-op, which in Quebec must be disclosed not just by the broker, but by  the current owner, a professional who bought it in 2010 with her husband and now  9-year-old son.

“I’ve seen a lot of grow-ops. You walk in and the stink alone gets to you,” said Barrett, a Royal LePage broker. “This is not like that at all. If we didn’t  have to disclose it and a building inspector came, it’s highly doubtful that  he’d ever realize it was a former grow-op.”

While Quebec, Ontario and B.C. require the disclosure of any former grow-op  during a sale, Barrett would not have to tell buyers outright about the  basement’s history if he were selling it as a professionally remediated, or  fully-repaired home in Alberta, real estate experts say.

“It’s a balancing act,” said Debra Bunston, senior industry adviser for the  Alberta Real Estate Association. “The question is, (in the case of a former  grow-op) is it a disadvantage to the seller to spend all this money to remediate  the property but then still have to declare it?”

Debate over disclosure rules on everything from the sale of renovated former  grow-ops, to houses that were the scene of violent deaths or suicides, has  erupted in several Canadian provinces, pitting protection for buyers against  sellers’ rights to command a fair price for their properties. Indeed, disclosure  issues made headlines this week after Quebec’s real estate industry balked at  requests by the Canada Mortgage and Housing Corp. for brokers to stop  identifying homes as being foreclosed in property listings, the  Financial Post reported.

Instead, brokers should simply inform prospective buyers that the home had  been repossessed by the national housing agency.

“We don’t want to attract lowball offers,” Mark McInnis, a CMHC  vice-president, told the FP, illustrating how the disclosure of this information  can directly affect property values.

While disclosure rules may not have as strong an impact on real estate when  the market is hot and owners are fielding multiple bids for their properties,  calls for reform are becoming louder today with the recent cooling of home sales  in cities like Montreal and Toronto.

That’s especially the case in Quebec, where these  rules are said to go further than anywhere else in the country, giving added  protection for buyers, but at times unfairly punishing owners, critics  charge.

The watchdog for Quebec’s traditional real estate industry came under fire  this winter, after its president said brokers must alert potential condo buyers  at 1000 de la Commune to  media reports revealing the presence of current and former residents with  Mafia links at the posh Old Montreal building.

“When a broker knows a factor that could be unfavourable to a transaction, he  must reveal it,” Robert Nadeau, president of the Organisme d’autoréglementation  du courtage immobilier du Québec, told  The Gazette in January. “From this moment on, a broker cannot say he doesn’t  know (about 1000 de la Commune).”

In Quebec, brokers are required to disclose facts that are “common knowledge” about a property like municipal taxes and information from newspaper articles,  the OACIQ said. They’re not required to ”investigate” a property.

But brokers fear that obligations like declaring “Mafia neighbours,” along  with a new requirement that Quebec sellers disclose whether anyone has died in a  home, risks hurting property values in La Belle Province.

“If someone from the Mafia once lived in a building, does that affect the  whole building for 20 years?” asked Louise Rémillard, president of Profusion  Realty, a Montreal affiliate of Christie’s Great Estates. “Do we need to divulge  this information forever?

“Does that mean the whole building loses value because of one apartment like  that?”

These rules are believed to be unique to Quebec, real estate experts from  B.C., Ontario and Alberta say.

While groups representing the traditional real estate industry in each  province set their own rules on disclosure, all buyers must generally be  informed of certain facts like whether a home has a latent defect, or was used  as a grow-op. In Quebec, sellers must disclose this information, either when  selling with, or without a broker, or risk being sued for not respecting the  province’s civil code, said Martin Desfossés, a real estate coach with the  for-sale-by-owner website DuProprio.

The potential danger with grow-ops is that, over time, the high-humidity  resulting from the growth of pot plants can warp wood and lead to a mould  infestation, among  other problems.

Despite their lower purchase price, grow-ops risk inflating other expenses,  since traditional lenders often won’t finance their purchase, and problems like  mould are excluded from most home insurance policies.

“Our stand has always been to avoid buying grow-ops because of the hidden  dangers,” said Don Campbell, president of the B.C.-based Real Estate Investment  Network. “If the choice is between an ex-grow-op and a property that hasn’t been  one, the investor should avoid the risk of buying the ex- and even remediated  grow-op.”

Others take a different view toward former grow ops. In Alberta, while  brokers must disclose latent, material defects they know about — such as a  cracked foundation not visible during an inspection — the province’s disclosure  rules reward owners who’ve fully fixed up homes once used as grow-ops.

When a house has been professionally remediated, a health notice that flagged  it as a former grow-op is removed from land records, Bunston of the Alberta Real  Estate Association said. In this case, brokers no longer have to declare the  home was a grow-op, but would have to answer honestly if asked the question by  the buyer, she said.

“Once it’s been remediated … technically the house no longer has a latent  defect. So they no longer have to disclose it,” Bunston said.

Alberta’s approach, however, is not foolproof and has sparked criticism over  its remediation standards and for failing to adequately protect buyers.

“We hear different stories,” she said. “In some cases, in houses that were  said to have been remediated, we still found mould.”

In Montreal, Barrett’s client knew that the West Island house had been used  temporarily as a grow-op because that information was declared by the former  owner. She still bought it after test results (which were provided to The  Gazette) showed that the presence of mould in the basement — common in most  homes — was low enough to “not represent any health risk.”

The owner, who declined to disclose her name, or the home’s location, said  she has since beautified the house further, upgrading several chandeliers and  replacing the old blinds with modern, cream-coloured verticals. She says she’s  selling because the family wants to be closer to downtown Montreal and her son’s  school.

It’s because of his client’s experience that Barrett says he has a new-found  appreciation for Alberta’s philosophy toward real estate.

In addition to the way it deals with former grow-ops, Alberta also doesn’t  require brokers to disclose a so-called “stigmatizing” event like a murder or  suicide that while, of concern to certain buyers, has no material impact on the  house, Bunston said. Instead, Alberta buyers must ask the question and have an “honest conversation” with the selling broker if they are averse to the idea of  buying a remediated grow-op, or a home used as the scene of a suicide, she  said.

“We have a different philosophy regarding stigmas.”

In extreme cases, stigma properties are literally unsellable. Take the former  Ontario residence of serial killer Paul Bernardo, who was found guilty of raping  and murdering two teenage victims at the home he was renting. The house was torn  down in 1995 and rebuilt with a new number.

Even homes with less notorious addresses can be a tough sell. An elegant five  bedroom home in Toronto has languished for 15 months on the market because it  was declared by the broker as the site of a homicide in 2011, the  Toronto Star reported last week.

In Quebec, property owners and brokers are being told to declare more and  more when selling homes, after a once  optional declaration form became mandatory for sellers in July 2012.

In 2006, a Quebec court ruled that former NHL great Marcel Dionne didn’t have  to disclose that his son committed suicide in the basement of the St-Constant  home he’d sold to buyer Sylvie Knight three  years earlier. Yet today, sellers are required by Quebec’s real estate  watchdog, the OACIQ, to declare not just murders and suicides, but to reveal  whether any deaths have occurred in the house at all when they answer the form’s  question that asks for the disclosure of “any other factors” related to the  value of the home.

“It’s absurd, they are stigmatizing properties by the tens of thousands,” said Barry Lebow, a Toronto real estate broker, appraiser and expert in stigma  properties. “You take any house that’s been around for 50 years or more and the  question isn’t whether there have been deaths in it, but ‘how many.’ ”

Obliging sellers to disclose any death could lead to lower bids on the house  simply because the information would discourage some buyers, Bunston said.

“That seems a little unfair to the seller,” Bunston said. “Let’s say there  was a violent and horrible murder in a house two months before the sale, versus  the case of a family that decides to bring grandma home (from hospital) so she  can die in her bed. Does one cause you to not want the property, while in the  other case you’d think, ‘how sweet.’ ”

“Clearly, I don’t think everyone would feel a house is unlivable because  grandma came home to die.”

What’s needed in several provinces, Lebow said, are more descriptive rules  that succeed in protecting buyers without condemning properties to being  eternally undervalued.

When it comes to grow-ops, for example, neither Quebec nor Ontario make the  distinction between a home with two or 30 plants, he notes.

“Were two pot plants … a detriment to the house?” he asked.

That lack of distinction places the cottage Barrett is selling in the same  category as an inexpensive home falling apart after years of neglect and use as  a marijuana grow-op.

“According to the regulations, there is no difference between the two homes,” he said.

“It’s an unfair condemnation.”

alampert@montrealgazette.com

@RealDealMtl

© Copyright (c) The Montreal Gazette

Read more: http://www.montrealgazette.com/homes/Stigmatized+real+estate+listings+disclosure+rules+fair+homes+that+were+grow/8036557/story.html#ixzz2NxrA3L3G

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