As a buyer or as a seller in Illinois, you may use the services of a real estate broker, or a sales agent employed by a broker. Brokers, and consequently, their sales agents, perform different functions in a given transaction depending on whether they are working for the seller or the buyer.
The seller’s broker will enter the property into a multiple listing service (MLS) and is, therefore, called the “listing broker.” The MLS is an electronic database of information about properties offered for sale. If you are a seller of residential property, your listing broker will also help you set the initial asking price for the property, show the property to potential buyers or buyers’ brokers and agents, negotiate terms of the sale, arrange for inspections of the property, and generally guide you through the sales process.
To perform these functions, the listing broker often reviews appraisals, inspection reports, surveys, and even helps you complete the seller’s disclosure report to the buyer (a form required by Illinois law). Through these documents and reports, the listing broker becomes familiar with many aspects of the property, often including its physical condition and defects not readily discernible through an ordinary viewing or even an ordinary inspection.
The listing broker can be a valuable information resource for the buyer, often even more valuable than the seller, because of the listing broker’s access to information about the property, experience and expertise in real estate transactions, and obligations under Illinois law to disclose information and sometimes even independently investigate and verify the condition of the property.
Listing Broker Disclosure Laws in Illinois
Illinois courts created the first laws requiring brokers to disclose their knowledge about the physical condition of residential property. In several cases between the 1970s and the present, Illinois courts have awarded damages to buyers for brokers’ violations of the general laws against fraud and negligent misrepresentation, based on the brokers’ communication of incorrect facts, or omission of facts caused by imprecise communication or lack of investigation.
More recently, the Illinois legislature, in recognition of listing brokers’ familiarity with the properties they list and status as trusted real estate experts, passed laws holding them to high standards of honesty and fairness. These laws require listing brokers to make broad disclosures about the property they offer for sale to potential buyers. If you are a buyer, the listing broker may be liable to you for damages you have suffered due to undisclosed property defects.
Let’s take a closer look at the listing broker’s disclosure requirements, and how they affect buyers and sellers of residential property.
What the Listing Broker Must Disclose to a Prospective Buyer
Under the Real Estate License Act of 2000 (RELA) (225 ILCS 454/1), the listing broker is required to disclose to a prospective buyer all adverse facts about the physical condition of the property that:
- are actually known by the broker
- are latent -- matters that exist, but are not visible or apparent, or could lead to future problems
- are material — an important feature that encourages someone to purchase the property (or not), and
- could not have been discovered by the buyer through an ordinary inspection.
Examples of issues brokers t would need to disclose under RELA include flood damage hidden by new paneling, hidden leaks or moisture, broken drainage tiles, which school district the house resides in, lot size, and termite damage – again, if known about by the broker.
What the Listing Broker Is Not Required to Disclose
RELA specifically excludes certain information from its disclosure requirements. The listing broker need not convey information about:
- an occupant of the property who is infected with HIV or any other medical condition
- an occurrence on the property that did not affect its physical condition
- an occurrence on neighboring property that does not affect the physical condition of the property to be sold, and
- a physical condition on neighboring property that does not reduce the value of the property to be sold. (225 ILCS 454/15-20.)
When the Listing Broker May Relay Information From Seller to Buyer Without Further Investigation
Under RELA, the listing broker may pass on information given by the seller without investigating its accuracy. For example, if the seller tells the broker that the house has never flooded or all leaks have been fixed, the broker may pass that information on. However, there are important exceptions to this rule.
The listing broker may not relay seller’s claims while knowing they are inaccurate or incomplete (for example, if the broker has personally observed evidence of termites or mold). The listing broker is always required to tell the buyer about known conditions, and cannot help the seller conceal or misrepresent anything about the property.
A broker is also required to investigate and confirm information about the property that will be included in any listing sheet or advertisements for the sale of the property. In one court case, a listing broker was found liable to a buyer for distributing an advertisement that inaccurately claimed the property was within a particularly attractive school district. The court ruled that the listing broker violated RELA for advertising the wrong school district without taking reasonable action to verify its accuracy. (See Capiccioni v. Brennan Naperville, Inc., 339 Ill. App. 3d 92 (Ill. App., 2003).)
Also, the broker must verify all information given in response to questions about the property. If you — as a buyer -- ask the listing broker questions about the condition of the property, the broker is required to investigate before giving you an answer. If the listing broker answers your questions, and the answers are incorrect, or omit relevant information, that broker could be liable to you for damages.
Finally, the listing broker must investigate matters that could lead to more information about conditions or defects in the property that are required to be disclosed, if known. The listing broker cannot intentionally remain ignorant of problems when known facts would cause a reasonable person to investigate.
Disclosure Required Under the Illinois Consumer Fraud and Deceptive Business Practices Act
The Illinois Consumer Fraud and Deceptive Business Practices Act (the Illinois Consumer Fraud Act) (815 ILCS 505/1) is a broadly written law that prohibits many Illinois businesses from making deceptive statements, misrepresentations, or omissions intended to encourage a prospective buyer to make a purchase. It applies to real property, and real estate brokers, and practically speaking, requires all brokers to make disclosures about the condition of the property similar to those required under RELA.
A broker may be liable to you — as buyer -- for false statements under the Illinois Consumer Fraud Act, even without having meant to deceive you. If the broker intended for you to rely on the information rather than making an independent inspection, the broker may be liable to you for your damage caused by any inaccuracy or omission.
Similar to RELA, under the Illinois Consumer Fraud Act, a broker may not be liable for innocently relaying information from the seller, but may be liable for relaying information that the broker actually knew was false, deceptive or misleading. A buyer suing a broker under the Illinois Consumer Fraud Act may be able to prove the broker had actual knowledge by showing that the broker was in a position to know that the information from the seller was false, deceptive, or misleading. Courts deciding cases under the Illinois Consumer Fraud Act have ruled that a broker was liable to a buyer for passing along false, deceptive or misleading information where the broker was very familiar with the neighborhood, where the broker personally observed an occurrence or condition on the property that is likely to cause a property defect, or where the broker witnessed repair work, or reviewed bills for repair work.
Illinois Laws on Fraud or Negligent Misrepresentation Further Protect Buyers
RELA and the Illinois Consumer Fraud Act were passed to better define the circumstances under which a broker may be liable to a buyer for failing to disclose a condition or defect on the property. These laws did not, however, negate previously existing rights a buyer may have under Illinois case law.
Under Illinois case law, a broker may not commit intentional fraud by concealing known conditions or defects in the property, nor by making false claims about the property’s condition.
Further, a broker may be liable for making unintentional misrepresentations about the property. If a broker carelessly fails to communicate, or inaccurately communicates, information about the property, the broker may be found liable to the buyer. Also, if a broker knows something about a property that would lead a reasonable person to investigate further, but the broker failed to do so, the broker may be liable even if the broker communicated the original information to the buyer.
For further information on Illinois real property broker disclosure requirements, consult an experienced real estate attorney.