Re/Max realtors’ failure to disclose ‘stinks,’ says ethicist

A Whitehorse couple has abandoned their appeal of a small claims court decision that ordered them to pay $10,818.15 in restitution to a realtor who bought their house in 2007. Kerry Lyle, the Re/Max agent who bought...

A Whitehorse couple has abandoned their appeal of a small claims court decision that ordered them to pay $10,818.15 in restitution to a realtor who bought their house in 2007.

Kerry Lyle, the Re/Max agent who bought the two-storey duplex, alleged Gary and Trudy Burdess withheld information about a moisture problem in the attic of the house. He sued them for the omission and won the claim in December.

But, after that lawsuit was launched, the Burdesses learned Lyle and fellow Re/Max realtor Dean Philpott had failed to disclose some key information themselves.

Months after the sale, the Burdesses learned Lyle—the buyer—had earned almost $5,000 in commission on the deal. He’d helped sell the house to himself.

“It stinks,” says ethicist Vincent di Norcia, a University of Sudbury emeritus professor in philosophy and author of the book Hard Like Water: Ethics in Business.

“If they (Re/Max) were concerned about this, they would kick these guys out for conflict of interest and lack of honesty with clients.”

The Burdesses listed the house, which they had purchased as a rental in 2004, with Philpott, a top seller who refers to himself in local advertising as “The Bald Guy.”

The couple had considered asking $275,000 for the 2,226 square-foot, two-storey duplex on Firth Road in Riverdale.

Philpott listed it at $261,900.

It sold to Philpott’s co-worker, Lyle, in August, 2007, for $259,000.

Lyle made $4,908 on the sale. Philpott was paid $6,035. Re/Max earned $1,327.

The Burdesses were out of town when the deal was sealed.

Philpott was also unavailable to complete it in person.

Philpott’s wife and fellow Re/Max employee, Viviane Tessier, informed the Burdesses by telephone that Lyle is a realtor, as is required by law.

“They didn’t tell us what the implications of that were,” said Trudy Burdess in an interview on January 19th.

Lyle completed a standard disclosure notice at the time of the sale, but Re/Max did not show the form to the Burdesses, nor obtain their signatures on the document.

“He (Lyle) signed the (disclosure) form, but we were supposed to sign the bottom, but we never did,” says Burdess, who included the unsigned form in the package of materials she and her husband presented in small claims court.

“We didn’t see the form until after this went to court.”

However, the form does not say where Lyle works, nor identify him as both the buyer and seller of the house and, as the latter, would be receiving a sizeable commission. The form only identifies Lyle as a licensed realtor.

“We didn’t know that he was the (selling agent), until the court thing happened, because we requested the paperwork from the file (from Re/Max).”

The withholding of the fact that the buyer of their house would be profiting from its sale is impossible to justify from an ethical perspective, especially in a small-city real estate agency that employs fewer than 20 agents, says di Norcia.

“Look, regardless of whether the two agents explicitly colluded on this, they certainly knew each belonged to the same firm,” he says. “I would say it’s impossible for them not to know.

“Therefore, they knew, and they didn’t declare, and if they didn’t know it was a conflict of interest, I don’t know what planet they were born on.

“Not knowing it factually is irrelevant. It is their job to know that and it is their job to tell the client.”

The Yukon Real Estate Association concurs.

In Yukon, realtors must represent the seller, not the buyer.

It is difficult to see how Re/Max could have represented their best interest in this case, when the realtors were representing both seller and buyer, says Burdess.

“In legal terms, both Kerry and Dean worked for the seller,” says association president Terry Bergen.

“Yes, he (Lyle) would be obliged to disclose that he was making a commission.”

The association entertains complaints if its member realtors are accused of unethical conduct.

If the allegations are of illegal acts, the association defers to the Yukon Real Estate Act, which states that realtors who are purchasing for themselves must disclose “complete details” to the vendor in writing.

The Yukon association complies with the Canadian Real Estate Board code of ethics, which states, in part, “all financial arrangements between realtors and others (e.g. referral fees, compensation from more than one party, rebates or profits on expenditures) must be fully disclosed to clients.”

Its affiliate board in British Columbia urges “When in doubt, disclose,” and states, “A realtor shall not buy or sell, or attempt to buy or sell an interest in property either directly or indirectly for himself or herself, any member of his or her immediate family, or any entity in which the realtor has a financial interest, without making the realtors’s position known to the buyer or seller in writing.”

The case captured national attention in the real estate community when a territorial court judge called the property disclosure forms that accompany this and almost all real estate transactions in Yukon a “legal minefield.”

The Burdesses spent around $30,000 decommissioning one suite in the house and improving the other two in order to comply with city and territorial codes and standards.

They had contended with some moisture in the upstairs suite, and, in spring, 2007, they had a carpenter enter the attic space to determine its cause.

The carpenter told them he saw no water damage inside the roof cavity, and attributed the moisture to excess condensation in the suite caused by tenants who neglected to use the fan when cooking and bathing.

He recommended they install a dehumidifier in the suite, and they did.

When it came to filling out a property disclosure statement (PDS) at the sale of the house, they told Philpott about the condensation in reference to the question, “Are you aware of any moisture and/or water problems in the walls, basement or crawl space?”

After telling the realtor they believed the problem had been resolved by the dehumidifier, Philpott advised them to add “Owners never lived in the house. It was a rental property,” in the lines on the form allotted to additional comments.

Lyle, alleging the water problem was neither disclosed in the PDS nor properly fixed, sued the Burdesses and was awarded $10,818.15.

Judge Michael Cozens did not address the issue of Lyle’s conflict of interest in his decision, except to note Lyle had disclosed he is a realtor and that he had no proof this caused the Burdesses concern.

Cozens also emphasized Philpott was not a defendant in the small claims case, that his handling of the PDS was likely typical of Yukon realtors and that it would be unfair to view his comments as “putting his (Philpott’s) actions in a negative light.”

However, in finding against the Burdesses, Cozens wrote, “Mr. Philpott did not tell the defendants to answer ‘no’… although it is logical on the evidence to infer that he did not dissuade them from doing so… when it would have been just as easy to suggest that the defendants note that there had been a past water and/or moisture problem that was now fixed.”

In calling for a comprehensive review of the PDS, an optional, but widely used, form in Yukon real estate transactions, Cozens admitted “the practical reality, however, is that many individuals in real estate transactions likely rely on their real estate agent for legal advice more than they should and real estate agents should be aware of this fact.”

“They said nothing,” says Burdess. “They pushed the paper (PDS) at us, we started filling it out, and that’s what happened. There’s no guidance, and it’s the first house we’ve ever sold. We got a realtor because we trusted a realtor to do it.”

Re/Max owner Daryl Weigand refused an interview, but reported the Burdesses have filed an abandonment of their appeal.

The Burdesses have also declined further comment.

Neither party would confirm an out-of-court settlement has been reached.

Many such settlements contain agreements of nondisclosure.

Barbara McLeod is a Whitehorse-based freelance writer.