Are disclosure rules fair on 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.”