Mistakes vs. Misrepresentations in Ontario Real Estate

One of the most important — and most tested — concepts in Ontario real estate education is the distinction between an innocent mistake and a misrepresentation. The two look similar from the outside: in both cases, incorrect information reaches a buyer or seller. But the legal consequences are vastly different. An honest mistake might result in a correction and an apology. A misrepresentation can end a career, trigger a lawsuit, and lead to criminal charges.

Understanding this distinction is not just an exam requirement. It is the foundation of professional conduct under the Trust in Real Estate Services Act (TRESA), the legal core of the Ontario real estate licensing pathway, and it shapes how RECO disciplines registrants when things go wrong.

Key Takeaways

• A mistake is an honest, unintentional error made without carelessness. A misrepresentation involves providing false information through negligence, recklessness, or deliberate intent.
• TRESA recognizes three categories: innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation. The consequences escalate sharply with each.
• RECO can impose fines up to $50,000 for individuals, suspend or revoke registration, and require mandatory education. Fraudulent misrepresentation can also lead to civil lawsuits and criminal charges.
• The best protection is diligence: verify information before communicating it, document your sources, and never make claims you cannot substantiate.
• This topic appears frequently on Course 1 exams and is revisited in Courses 2, 3, and the simulations.

Legal Definitions Under TRESA

TRESA and the RECO Code of Ethics set the framework for how registrants must handle information in transactions. The legal categories of misrepresentation are not unique to real estate — they come from common law — but TRESA applies them specifically to registrant conduct.

What Is a Mistake?

A mistake, in this context, is an error that occurs despite the registrant exercising reasonable care. The registrant:

• Did not know the information was incorrect
• Had no reason to suspect it was incorrect
• Took reasonable steps to verify the information
• Did not benefit from the error

Example: A registrant reports the lot size of a property based on the municipal property assessment data and the listing information from the seller. The actual lot size, as revealed later by a survey, is slightly different due to an error in the assessment records. The registrant relied on an authoritative source and had no reason to question it. This is a mistake, not a misrepresentation.

What Is Misrepresentation?

Misrepresentation occurs when false information is communicated in a way that falls below the standard of care expected of a registrant. There are three levels.

#### Innocent Misrepresentation

The registrant communicated false information without knowing it was false and without negligence. This is the closest category to a "mistake" but differs in that the information was actually relied upon by the other party and caused them harm.

• The registrant believed the information was true
• The registrant was not careless in forming that belief
• The affected party relied on the information and suffered a loss

Consequences: The affected party may be able to rescind (cancel) the contract but typically cannot claim damages. RECO may not impose sanctions if the registrant acted reasonably.

#### Negligent Misrepresentation

The registrant communicated false information because they failed to exercise the care and diligence that a reasonable registrant would have exercised. This is the most common form of misrepresentation in real estate disciplinary cases.

Key elements:

• The registrant made a statement they should have known was false
• The registrant failed to verify information that a competent registrant would have verified
• The affected party relied on the statement and suffered a loss

Example: A registrant tells a buyer that a property has a "brand new roof" because the seller mentioned it casually. The registrant never asked for documentation, never checked the age of the roof, and never included any qualification like "according to the seller." The roof turns out to be 15 years old. This is negligent misrepresentation — the registrant had a duty to verify and failed to do so.

Consequences: The affected party can claim damages (financial compensation). RECO can impose fines, suspend or revoke registration, and require corrective education. Civil liability is significant.

#### Fraudulent Misrepresentation

The registrant deliberately communicated false information, or communicated information with reckless disregard for whether it was true or false, with the intent to induce the other party to act.

Key elements:

• The registrant knew the information was false, or was reckless about its truth
• The registrant intended the other party to rely on it
• The affected party did rely on it and suffered a loss

Example: A registrant knows that a property experienced significant basement flooding last spring but tells potential buyers the basement has "never had any water issues" to avoid losing the sale. This is fraudulent misrepresentation.

Consequences: All civil remedies apply (rescission, damages, potentially punitive damages). RECO can revoke registration and impose the maximum fine. Criminal fraud charges are possible under the Criminal Code of Canada. This is the most serious category.

The Spectrum: From Mistake to Fraud

It helps to think of these categories as a spectrum:

The critical dividing line is between innocent misrepresentation and negligent misrepresentation. On one side, the registrant did their best and got it wrong. On the other, the registrant should have done more and did not. This is where most disciplinary cases are decided.

Consequences for Registrants

RECO Disciplinary Action

RECO investigates complaints against registrants and can refer matters to its Discipline Committee. The Discipline Committee has the authority to impose:

• Fines — Up to $50,000 for an individual registrant, up to $100,000 for a brokerage
• Suspension — Temporary removal of registration, typically for a defined period
• Revocation — Permanent removal of registration. The registrant can no longer practise real estate in Ontario.
• Conditions on registration — Requirements such as additional education, mandatory supervision, or practice restrictions
• Mandatory education — Completion of specific courses related to the area of misconduct
• Reprimand — A formal statement of disapproval placed on the registrant's record

The severity of the sanction depends on:

• Whether the misrepresentation was negligent or fraudulent
• The financial harm caused to the affected party
• Whether the registrant has prior disciplinary history
• Whether the registrant cooperated with the investigation
• Whether the registrant took corrective action

Civil Lawsuits

Independent of RECO's disciplinary process, affected consumers can sue registrants for damages caused by misrepresentation. Civil lawsuits can result in:

• Compensatory damages (the amount of financial loss)
• In cases of fraud, potentially punitive damages
• Legal costs

Errors and Omissions (E&O) insurance covers some civil claims arising from negligence, but it typically does not cover fraud.

Criminal Charges

Fraudulent misrepresentation can lead to criminal fraud charges under the Criminal Code of Canada. A conviction carries potential imprisonment and a permanent criminal record. This is rare in real estate but not unheard of in cases of systematic or large-scale fraud.

Real Examples (Anonymized)

The following are based on publicly reported RECO disciplinary decisions and civil case outcomes, with identifying details removed.

Example 1: Negligent Misrepresentation — Lot Size

A salesperson listed a property with a lot size based on information from the seller. The salesperson did not verify the lot size against the property survey or the Land Registry Office records. The actual lot size was 20% smaller than advertised. The buyer purchased the property relying on the listed size and later discovered the discrepancy.

Outcome: The Discipline Committee found negligent misrepresentation. The salesperson was fined and required to complete additional education. The buyer pursued a separate civil claim and received compensation for the difference in value.

Lesson: Always verify factual claims — lot size, square footage, property boundaries — against authoritative sources. The seller's word alone is not sufficient.

Example 2: Fraudulent Misrepresentation — Concealing a Defect

A salesperson knew that a property had a chronic mould problem in the basement because the seller disclosed it during the listing process. The salesperson instructed the seller to clean the basement and repaint the walls before showings, and did not disclose the mould issue to any buyers. A buyer purchased the property, discovered the mould within weeks, and filed complaints with both RECO and in civil court.

Outcome: The Discipline Committee found fraudulent misrepresentation. The salesperson's registration was revoked. The buyer's civil lawsuit resulted in significant damages. The salesperson's E&O insurer denied coverage because the concealment was deliberate.

Lesson: Concealing known defects is fraud, full stop. The obligation to disclose material defects exists under TRESA regardless of the seller's wishes.

Example 3: Innocent Misrepresentation — Zoning Information

A salesperson told a buyer that a property could be used as a home-based daycare, based on the municipal zoning information available at the time. After the purchase, the municipality clarified that the specific zone required a minor variance for daycare use. The buyer incurred costs to obtain the variance.

Outcome: The Discipline Committee found no misconduct. The salesperson had relied on the zoning information available and had recommended that the buyer verify zoning suitability with the municipality (which the buyer did not do). This was an innocent misrepresentation at most.

Lesson: Recommending that clients verify information independently — and documenting that recommendation — protects both the client and the registrant.

How to Protect Yourself as a Registrant

1. Verify Before You Communicate

Never pass along information as fact without verifying it from an authoritative source. This applies to:

• Property dimensions and lot sizes (verify against surveys, assessment records)
• Age and condition of major systems (roof, furnace, HVAC — ask for documentation)
• Zoning and permitted uses (verify with the municipality)
• Financial information on commercial properties (verify against tax returns, financial statements)
• Flood, environmental, or structural history (check available records and disclosures)

2. Qualify Your Statements

When you must communicate information that you cannot independently verify, qualify it:

• "According to the seller..." instead of stating it as fact
• "The listing information indicates..." with a recommendation to verify independently
• "Based on the municipal assessment, which should be confirmed by survey..."

These qualifications do not eliminate your obligation to exercise reasonable care, but they reduce the risk of a buyer or seller claiming they relied on your personal guarantee of accuracy.

3. Document Everything

Keep records of:

• Where you obtained information and when
• What you communicated to clients and when
• Recommendations you made to clients to verify information independently
• Responses you received from third-party sources

If a complaint or lawsuit arises, your documentation is your best defence.

4. Never Conceal Known Issues

If you know about a problem with a property — whether told by the seller, observed during a visit, or discovered through research — disclose it. Even if the seller instructs you not to disclose, your obligation under TRESA is clear: material facts must be disclosed.

If a client instructs you to conceal a material fact, advise them that you cannot comply. If they insist, consider whether you can continue to represent them.

5. Carry Adequate Insurance

Errors and Omissions insurance is mandatory for Ontario registrants. Make sure your coverage is adequate and that you understand what it covers and what it excludes. E&O insurance covers negligent errors but typically excludes fraud.

This Topic on the Exam

Mistakes vs. misrepresentations is tested most heavily in Course 1, where the legal definitions and RECO disciplinary framework are introduced. However, the concept appears throughout the program:

• Course 1: Legal definitions, RECO discipline, TRESA obligations
• Course 2: Applied to residential transaction scenarios (seller disclosure, buyer advisement)
• Course 3: Applied to property-specific issues (condo status certificate accuracy, new construction representations)
• Simulations: Scenario-based questions requiring you to identify potential misrepresentation situations and choose the correct course of action

For Course 1 exam preparation, see our Course 1 practice exam guide and ExamAce's Course 1 question bank.

Frequently Asked Questions

Can I be held liable for something the seller told me that turned out to be false?

Potentially, yes — if you communicated it to the buyer without reasonable verification. A registrant has a duty to exercise due diligence, not merely parrot what the seller says. If the seller told you the roof was new and you told the buyer the roof was new without checking, and the roof is 15 years old, you may be found negligent.

What if I said "as per the seller" — does that protect me?

It helps, but it is not a complete defence. A registrant still has an obligation to exercise reasonable care. If the information was easily verifiable (e.g., the age of a roof is documented in a home inspection report on file), saying "as per the seller" without checking is still potentially negligent.

Is puffery considered misrepresentation?

Puffery — vague, promotional language like "this is a great neighbourhood" or "perfect starter home" — is generally not considered misrepresentation because it is opinion, not a statement of fact. However, the line between puffery and misrepresentation can blur. "This home has the best school district in the city" could be considered a factual claim if it is not true.

What happens if my brokerage is also liable?

Under TRESA, brokerages can face fines up to $100,000 for misconduct by their registrants. The broker of record has supervisory obligations and can be held accountable for failures in oversight. Both the individual registrant and the brokerage may face consequences.

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ExamAce is not affiliated with RECO, Humber Polytechnic, Algonquin College, Fleming College, or Career College Group. This guide is for educational purposes and does not constitute legal advice.

Understanding misrepresentation law is essential for both the exam and your career. ExamAce practice questions include scenario-based questions on this topic — so you can test your ability to identify and handle misrepresentation situations before the exam.

Related on ExamAce

• Ontario real estate exam process and licensing pathway — the regulatory route
• TRESA explained — the legislation behind the disclosure rules
• Course 1: Real Estate Essentials practice bank — scenario questions on misrepresentation