Disclose, Disclose, Disclose – To Stay Out of Disputes Between Sellers & Buyers on “Failure to Disclose Allegations”
If a real estate agent fails to exercise appropriate judgment when working with a seller intent on “under-disclosing” pertinent facts about a listed property, or a buyer’s agent fails to properly address a buyer’s noted concern about the condition of a subject property, the agent (and the agent’s client) can end-up facing serious consequences including:
- Lawsuits. Being sued by a buyer or seller is a potential consequence of helping to force a transaction without properly addressing the noted concerns of one of the parties. This is a “nightmare situation” for an agent – i.e., a lawsuit potentially exposing you to financial and/or disciplinary damages and, at a minimum, resulting in a serious drain of your energy and resources. If you try to downplay something potentially (or actually) wrong with the property, you could find yourself drawn into the middle of a legal dispute between the buyer and seller. One example we have seen involved a buyer suing a seller for failing to disclose the existence of a large “sinkhole” on the property even though the seller (allegedly) knew it was sinkhole and the seller took steps to back-fill the hole in anticipation of listing the property for sale. The buyer must prove the listing agent had certain knowledge about the sinkhole and participated in the failure-to-disclose such condition, but the agent will be on the defensive, at a minimum, until the matter is resolved in court.
- Having to backpedal. If you’re representing the seller, and you know the house has a leaky roof, it’s important for the seller to disclose the full extent of the leak to any potential buyers. The leak issue will invariably surface later in the process – perhaps after the inspection – and if the buyer discovers that you or the seller knew about the leak but failed to fully disclose the issue, you’ll find yourself on the defense. The buyer’s agent will also be on the defensive, which could put negotiations at risk. Other legal consequences could result from this set of circumstances.
- Don’t be afraid to dig deeper into an issue with a property. A good agent knows if there is a gray area as far as whether to disclose, it’s better to err on the side of caution. Rarely has anyone gotten in-trouble for “over-disclosing.” This means advising your clients to disclose the full extent of issues to potential buyers. We understand this can sometimes seem like a great way to scare buyers off, but you’ll save yourself, and your client, many potential headaches and legal problems in the long run if you’re upfront about leaks, mold, water damage, or anything else that may surface in the future.
Here are some guidelines you could follow:
- Is the condition of the property something that you would want to know about if you were the actual buyer of the house in question? If so, then DISCLOSE the condition.
- General rule: If you have to ask the question – should I disclose this issue? – you’ve basically answered the question – “yes”.
- If you’re representing the buyer, you’ll need to have the courage and conviction to support and validate the buyer’s concerns about the property—even if that means they may end up backing out. Whatever repairs need to be made or might need to be made in the future should be represented accurately to your client. No, they may not end up buying that particular property, but if you show them that you’ve got their best interest at heart, they’ll stick with you as they search for the right property moving forward.
Finally, always consult with your broker and/or legal counsel any time you have a question in this area – this is a very “fact-specific” subject area, and rarely are two situations exactly alike. There is no hard-fast rule to sum up your responsibilities in this area, so it will be incumbent upon you to seek advice and counsel, pro-actively and up-front, to avoid the potential pitfalls and consequences summarized above.