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PROPERTY DISCLOSURE Advice for Avoiding Liability Ralph Holmen, associate general counsel for the NATIONAL ASSOCIATION OF REALTORS®, offers some expert advice on ways to limit your liability during real estate transactions. Q: What can real estate salespeople do besides getting a properly signed disclosure statement to protect themselves against claims for misrepresentation? Holmen: Failing to disclose a known fact that might keep the buyers from purchasing the home or that might alter the price they were willing to pay could lead to charges of misrepresentation at a later date. When you walk through the house at the listing, pay attention to red flags that might indicate problems. For example, if you see water marks along the bottom of the basement wall, this may be an indication that the basement leaks. You shouldn’t assume that it does, but you should be concerned enough to get more information. Once you’ve noticed a problem, you can’t just ignore it. This walk-through is also a time to reconcile what the sellers have told you with what you observe. If you see something contradictory, you need to artfully probe the sellers and persuade them of the need to investigate the possible problem further. So if you see the watermarks in the basement, but the sellers haven’t mentioned any problems with water, you need to question them further. It’s also helpful to point out to the sellers that acknowledging and resolving problems before putting the house on the market can often lead to a quicker sale and maybe even a higher price. Q: What about your liability if you really don’t notice a defect? Holmen: Case law is fairly consistent in imposing liability only when there is culpable conduct-- fraud or negligence. As a real estate salesperson or broker, you are only expected to exercise good professional judgment to recognize problems that are apparent, not to recognize problems that are outside your expertise. For example, unless you are also a structural engineer, you won’t be expected to recognize a structural defect, but you might be expected to see cracks in the foundation. Q: What other liability pitfalls should real estate professionals avoid? Holmen: Be certain that you don’t make statements that the buyers may rely on in their buying decision unless you are sure of your facts. If you’re expressing an opinion, be sure you say so. Instead of saying, “This house will appreciate 5 percent a year,” say something like, “Houses in this neighborhood have been appreciating at an average of 5 percent a year for the last five years.” Creating and retaining documentation of the information you provide to buyers and sellers about the condition of property and potential problems is another way to protect yourself from liability. That doesn’t mean operating your business with the principal goal of avoiding lawsuits. But getting in the habit of writing notes to your file on conversations with all the parties is a good practice. Q: In closing, what’s the most important things real estate professionals should remember about disclosure. Holmen: Essentially, disclosure should be based on the golden rule—disclose to others what you would want to have disclosed to you! Buyers cannot expect to get a completely perfect house, but they have a right to expect to be informed of important facts known about the property that could affect their decision.
Risk-Reduction Tips
TIP: No one expects you to know everything about a house. Real estate professionals aren’t expected to know about “latent defects,” defects that aren’t apparent without in-depth inspection. TIP: Keeping written notes of telephone and in-person conversations with sellers and potential purchasers about facts of the sale is a great way to reduce the potential liability for misrepresentation. If a question arises, you won’t have to count on your memory. TIP: To protect yourself against possible misrepresentation, ask sellers for written documentation on the age of fixtures. If you haven’t seen written backup, tell buyers that the facts you are giving them were provided to you by the seller. Property Disclosure, next page > Note: This information provides general legal information and should not be relied upon as legal guidance. Before acting, both the relevant laws and legal counsel should be consulted. This information should not be construed as specific legal advice nor as an opinion on particular facts, cases, or situations. |
Keep It Ethical You are not obligated to discover latent defects in a property or to advise on matters beyond the scope of the expertise required for real estate licensure. Article 2 |