She bought a house on a fledgling auction site. Now she faces over $100K in repairs

An Ottawa woman who bought her first home using a new online auction platform is now facing over $100,000 in repairs for issues not disclosed in the inspection report that came with the property, and says the company that auctioned it to her was unresponsive for months.

Jennifer Mealing said attempts to get Unreserved an Ottawa-based tech startup that bills itself as a disruptor in Ontario's real estate industry to take partial responsibility for not disclosing a litany of major faults in her new home and to pay for the unexpected repairs had until recently fallen on deaf ears.

The defects included a faulty furnace, crumbling brickwork, an electrical panel that differed from the listing's specifications, aluminum siding peeling off the exterior walls, as well as charring and structural damage from a 2003 fire that Mealing said she only found out about after a contractor discovered scorched lumber and chunks of charcoal under the flooring.

"It wouldn't have been hard for [Unreserved] to help out a little bit," said Mealing. "It wouldn't have hurt their back end, their business model, to actually give a shit about someone who trusted them."

She added that in hindsight, she shouldn't have relied solely on the inspection and warranty report provided in the listing.

Mealing and her lawyer are asking Unreserved for $44,850.78 under half the total repair cost for what they believe are the most obvious defects that should have been disclosed in Unreserved's report for the property.

WATCH |Homeowner says she discovered fire damage, mould after buying home through auction site

Homeowner says she discovered fire damage, mould after buying home through auction site

2 years ago

Duration 2:15

Jennifer Mealing, who bought a house using online auction platform Unreserved, says there were numerous problems with the home that were not disclosed in the inspection report that came with the property.

Hours after CBC contacted Unreserved for comment on this story, the company got in touch with Mealing's lawyer after nearly two months of silence to begin negotiating a settlement.

In a series of emailed statements to CBC, Michael Ryan O'Connor, Unreserved's founder and CEO, initially said the repair cost of all the issues flagged by Mealing fell below the $5,000 deductible for the company's warranty, which requires customers to file a separate claim for each individual defect.

"With any home there will always be minor issues that come to light," said O'Connor. "We've stood and will continue to stand behind every home that we sell."

In a subsequent email, O'Connor said his company is attempting to remedy "all of the real issues," but that "it appears to me that she is trying to turn her 40-year-old home [into] a brand new home at the expense of Unreserved."

Users registered with Unreserved can bid openly on houses like an outsized eBay. The outfit claims it offers buyers greater transparency than traditional brokers, who by law are barred from disclosing the dollar amount in competing offers (this process is commonly known as blind bidding).

Unreserved is able to skirt this notorious regulation by exploiting a decades-old exemption in Ontario's real estate laws meant for auctioneers to sell off farm properties.

Unreserved advertises its listings as "pre-inspected," but professional home inspectors who spoke with CBC, including the head of the Canadian Association of Home and Property Inspectors, say the reports provided by the platform fall short of industry standards.

The company says it stands behind its inspections with a one-year limited warranty on the properties it sells, but one real estate educator said if a well-funded startup such as Unreserved is unwilling to live up to one of its core promises to consumers, it could spell "an ominous future" for the business.

"You either course-correct or you die," said Mark Morris, who teaches real estate law at Toronto Metropolitan University's Lincoln Alexander School of Law.

Buyer alleges blatant defects were missed

Mealing, 38, said she had been saving up to buy her first home for her entire adult life. After roughly two years of searching for the right property, a listing by Unreserved caught her eye.

After attending an open house, she toured the four-bedroom, two-bathroom semi-detached home in the suburb of Orlans with her realtor and spotted a few superficial issues, but deemed the house in good enough condition to make a bid when the online auction opened in December 2021.

Mealing said she bid on the home without her realtor present and said her realtor didn't flag any issues with the property.

Real estate experts CBC spoke to said realtors are bound to act in their client's best interests, but aren't expected to provide a definitive assessment of a property's physical condition.

"The bidding process was kind of fun. You get a little dopamine burst when you click the bid button, and it was significantly less stressful than blind bidding," said Mealing. "And everything seemed to be OK."

The aspiring homeowner put in a final bid of $517,501 the highest before the auction closed and won the home.

Not long after the auction closed, Mealing said her realtor ended their relationship. Her realtor declined to speak to CBC when asked about Mealing's experience.

The purchase price of Mealing's home was far higher than those in Unreserved's own "market comparables" document included with the listing, which displayed an estimated market value for the home between $430,000 and $470,000.

Mealing began flagging issues with the property almost immediately after taking possession in late January. In a series of emails with an Unreserved representative, which CBC has viewed, she raises the discrepancy with the electrical panel, a broken over-the-range microwave, and the failure to paint the home's front door (a new door in a colour of the buyer's choosing was included in the property listing).

Mealing told the representative that her purchase "has most definitely not been a pleasant experience."

In February, she hired a contractor to handle the small repairs the house would need before she could move in but the contractor uncovered something she didn't expect.

"He's like, 'I think your house has been in a fire'.... He just sort of reaches his hand into one part of the closet and snaps off charcoal [from the] subfloor," recalled Mealing.

"We're kind of like, 'Oh, OK, there's a serious problem here.'"

Mealing obtained the fire report for her property from the City of Ottawa, which CBC has seen, detailing a major blaze in 2003 that started near the dryer in the basement and caused $125,000 in total damage, according to a city investigator.

As the contractor opened up sections of the floor, the fire damage proved widespread.

"We ended up having to gut the entire upstairs," she explained.

Mealing said she then raised the issue of the fire damage with Unreserved.

"They told me that their warranty didn't cover it," she said, "and it wasn't their problem."

In his email to CBC, O'Connor said the "house fire that apparently happened several years ago there is no visible damage and unless the inspector was lifting up the floor boards there was no way of knowing of a fire.

"With that said, if there is anything structural from the fire that needs to be replaced, we would do so under our warranty."

As work continued, Mealing said more problems were revealed.

Cold air return vents, which are essential to the home's central air system, had been drywalled over; the basement contained mould; the electrical service to the house was only 100 amps while the listing claimed it was 200 amps; and the furnace showed signs of leaking and corrosion.

She hired a professional home inspector a month after taking possession of the house to get a handle on the scale of the problem. The inspector's report, which CBC has seen, detailed dozens of defects not disclosed in Unreserved's report.

An Unreserved representative made several visits to the house during this period, said Mealing.

The company eventually offered her $4,000 in late March in exchange for signing a final release.

"He said that I should consider myself lucky that they're offering anything at all because they don't have to," Mealing recalled.

The document stated the funds were to be used to repair brickwork on the front of the house, paint the front door, and upgrade the electrical service to 200 amps.

If she accepted the payment, the document stated, Mealing would waive any right to sue Unreserved in the future.

She said she took the offer to a lawyer for review and began meticulously documenting the defects on the house and the work she had done to fix them. The $4,000 offer later lapsed.

O'Connor said Unreserved felt Mealing and her lawyer were negotiating in bad faith because their offer stipulated that should his company not compensate Mealing for the defects on her property, they would launch a legal claim and approach media outlets "to warn future buyers of Unreserved."

Unexpectedly, after Mealing had flagged several of the issues with her home with Unreserved, she said a representative from the company called to ask if she would appear in a marketing video.

"And I'm like, 'Hi. No, thank you. I'm actually having a lot of trouble with my home," she said.

On more recent Unreserved listings, some supporting documents now include a small-print disclaimer at the bottom of each page, stating that Unreserved makes "no representations that the content in this report is accurate, complete, or up to date."

"Your use of the information in this report is at your own risk," it continues. "Unreserved Inc. will not have any responsibility or liability whatsoever for your use of this report."

The report Mealing received for her home does not appear to include this disclaimer.

In June, her lawyer sent a letter to O'Connor, Unreserved's founder and CEO, demanding $44,850.78 in compensation.

Neither O'Connor nor Unreserved responded to this letter before its prescribed deadline.

Home inspection reports typically longer, more thorough

On its website, Unreserved says it "pre-inspects every home before it enters the auction block" and that it makes these inspections "fully visible."

However, another Ottawa home inspector who has done his own assessment of a different Unreserved listing said the company's report on that home didn't come close to painting the full picture.

"There's really nothing in there that would qualify as a home inspection," said Mike White, a registered home inspector with 17 years of experience and nearly 7,000 home inspections under his belt.

In June, White was hired by a prospective buyer to conduct a pre-offer inspection on a home listed by Unreserved.

White said he found a chimney in need of major repairs and other masonry issues.

Both jobs would cost thousands of dollars, according to White's assessment.

CBC located the Unreserved report for that listing in the Glebe it appears nothing similar to White's findings relating to the chimney or masonry was mentioned.

"I would be very leery if I was a buyer to purchase one of these homes without getting an actual home inspection done," White said.

The buyers who hired White did make an offer on the property, but it was rejected because it was below market value, according to the real estate agent who represented the buyers.

Roughly four weeks later, the listing was still on the market, and the same buyers were able to close the sale for only a few thousand dollars more than their original offer.

Canada's national home inspectors trade group says Unreserved's report on Mealing's house falls well short of the standards set out for its members.

"It's not as detailed as I would like to see a report," said Peter Weeks, president of the Canadian Association of Home and Property Inspectors (CAHPI).

The report for Mealing's house provided by Unreserved and obtained by CBC is three pages long, and the one provided for the Glebe property is only two pages.

Weeks said his typical inspection report can run anywhere from 30 to 80 pages.

"As professional home inspectors, we have a keen eye for defects," he said. "You train to learn how to catch these defects. There may be small clues and signs of things that we see that we as professionals understand."

Weeks added that homebuyers can sometimes use the information in a professional home inspection to negotiate a lower price, or choose to walk away from a purchase if the cost of repairs is more than they are willing to take on.

Unreserved founder O'Connor claimed that different home inspectors will identify different issues on a property.

"If you have 100 different inspectors inspecting the exact same home you will get 100 different findings," he said in a written statement. "Inspectors are human and some will call things that others don't. Our warranty is in place to help mitigate the human element."

O'Connor said his company deals with "different inspectors in many different territories."

"Some belong to the associations while others are experienced trades," he said, adding the person hired to assess Mealing's home was "an inspector for Minto (real estate company) for 15 years prior to joining Unreserved."

Weeks pointed out that members of CAHPI are required to carry errors and omissions (E&O) insurance, and that buyers who hire their own inspector have the option to file a claim against that inspector if they miss something major in their report.

Buyer Beware

As previously reported by CBC, Unreserved is currently suing three of Canada's largest real estate trade associations for $25 million over what it alleges are attempts to scare consumers away from its novel approach to selling homes.

None of the allegations has been proven in court. CAHPI, the trade group representing home inspectors, is not one of the parties listed.

Additionally, Unreserved's founder and CEO pleaded guilty to two counts of fraud over $5,000 in 2009 over fudged car loan applications.

The RCMP launched an investigation into his business after hundreds of customers complained of facing financial ruin after signing loans with his chain of used car dealerships, which shuttered over a decade ago.

In an earlier interview with CBC, O'Connor said he "took full ownership of everything that happened in that business" and has since rebuilt his credibility.

His current venture, Unreserved, says it stands by its "pre-inspected" promise by offering a one-year, $100,000 limited warranty to buyers, reassurance in an industry in which transactions are conducted on a caveat emptor basis, meaning the buyer takes the risk as to the condition of the home they are buying.

"This is the reason that you are supposed to trust Unreserved. It's because this warranty has been extended," theorized Morris, the seasoned real estate law instructor who's handled over 50,000 real estate transactions over his career as a lawyer.

Morris notes the way Unreserved selects its own inspectors, inducing customers to rely on their reports, could haunt the company down the road should undisclosed defects keep popping up.

"If you ask yourself, would a reasonable person believe that this is a safe property to buy as a result of their marketing?" he said, "You may be able to say, 'I relied on you to my detriment and thus, I may have a successful suit against you.'"

He points out that Unreserved is exceptionally well-funded, a rare position for a startup.

In early 2022, it raised nearly $34 million in venture capital to bankroll its growth.

Morris said that few so-called "big idea" businesses live up their aspirational promises to consumers at first, but a company falling short of these promises, "may speak to an ominous future if the principals of the business, who have the ability to live up to their promise, are not doing so at the outset."

'They completely failed me'

Mealing said unless Unreserved is willing to offer her fair compensation for the undisclosed defects in her home, her next step is filing a court claim against the company. However, the pricey repairs to her new home mean she can't afford the legal fees right now.

Although she holds a well-paying job with the federal government, Mealing said she's taken on a second job to cover the unexpected costs from her home purchase.

At the current rate, she expects it will take her "between seven to 10 years to pay off what's happened here."

"I counted on Unreserved's inspection," said Mealing, "and I think they completely failed me."

Now that the mould has been safely removed, she's also considering renting out the lower floor of the house for extra income.

Asked what she would say to O'Connor, Unreserved's CEO, if he communicated with her, Mealing responded: "I would want him to speak to my lawyer, because I don't want to speak to him, to be perfectly honest."