If you are considering buying a home in Michigan, you may be aware that the seller has an obligation to provide you with certain details regarding the property’s condition (see “Home Sellers in Michigan: Your Disclosure Obligations” for more on this). You may not be aware that the real estate broker or its agent (broker) who sells you the house – and may or may not represent you as well -- also has some obligations to you.
In Michigan, a broker may represent the seller, the buyer, or in some cases, both parties in a property sale. The broker’s duties to you depends on whether he or she represents you in the transaction. It is important that you clearly establish the terms of your relationship with the broker prior to disclosing personal information, or otherwise engaging in any real estate services; and that you know how much information to expect from the broker representing the seller.
Three Types of Agency Relationships
Before going any further with your real estate transaction, you should determine the terms of your relationship with each and every broker involved. Prior to your disclosure of confidential information, the broker you are planning to work with is required to disclose the types of agency relationships available and the duties created by each type. (Mich. Comp. Laws Ann. § 339.2517(1)). Once you establish your agency relationship, the details must be put into writing in a Disclosure Regarding Real Estate Agency Relationships document. (Mich. Comp. Laws Ann. § 339.2517(2)). The three types of agency relationships are:
- Seller’s agency, where the broker represents only the seller. In this case, the broker will disclose information to the seller about the buyer, which may benefit the seller. A buyer should not disclose any confidential information to a seller’s broker, as it may be used against the buyer in the property sale.
- Buyer’s agency, where the broker represents only the buyer. In this case, the broker will disclose information to the buyer about the seller, which may benefit the buyer. As a buyer, this relationship is preferred, as the broker is obligated to work for your best interests.
- Dual agency, where the broker represents both the buyer and seller. This relationship may be created only with the knowledge and written consent of both the buyer and seller. In this case, the broker is not allowed to disclose known property information to either buyer or seller, and will not negotiate on behalf of either party. Because the broker’s primary job is to close the transaction without looking out for your best interests, you should be careful about entering into a dual agency relationship.
Limitations on Broker’s Disclosure Requirements
Unlike the seller, a seller’s broker is not required to complete a written property disclosure statement, detailing the property’s condition. In fact, the seller’s disclosure statement specifically states that the disclosures are “made solely by the seller and are not the representations of the seller's agent(s).” (Mich. Comp. Laws Ann. § 565.957).
The general rule is that a broker doesn’t need to disclose property defect information to the buyer, and is not liable for the seller’s misrepresentations about the property. (Alfiero v. Bertorelli, 295 N.W.2d 772 (2012)).
The broker cannot, however, lie about the property’s condition. And, if the broker discovers that a previous statement made about the property is not true, the broker must disclose the correct information to the buyer. This is especially true if a buyer expresses an interest in a particular property issue, or asks the broker directly about a particular issue. (Alfiero v. Bertorelli, 295 N.W.2d 772 (2012)). For example, if the buyer asks the broker whether there has been any flooding in the basement, and the broker knows that there has been flooding, the broker must disclose that information to the buyer.
Given that the broker is an expert on matters of real estate, and is approaching the property with a set of fresh eyes, he or she may notice property issues that even the seller may have been aware of. In practice, if the broker believes the seller (intentionally or unintentionally) omitted or misrepresented information on the disclosure statement, the broker will typically discuss the issue with the seller and explain the consequences (buyer’s ability to cancel the contract or sue for fraud or misrepresentation).
In some cases, if the seller does not correct the disclosure statement, the broker may end up terminating his or her relationship with the seller. This is because if the broker is found to have acted with the seller in concealing or misrepresenting property information, the broker may be liable to the buyer. (Mich. Comp. Laws Ann. § 565.957). In most cases, however, the seller will amend the disclosure statement to reveal the property defect.
In a situation where the broker actually acted together with the seller to conceal or otherwise not disclose an issue, as stated above, a home buyer might be able to sue the seller and the broker, most likely for fraud or misrepresentation. (Mich. Comp. Laws Ann. § 565.965).
However, the law has carved out exceptions to this as well. A home buyer cannot sue the seller’s broker for failure to disclose that a former occupant of the home has or may have had a disability, that the property may have been the site of a murder or death or other violation of the law (so long as this didn’t materially affect the condition of the property or its improvements), or information that’s found in the state’s computerized law enforcement database regarding registered sex offenders. (Mich. Comp. Laws Ann. § 339.2518 (a) – (c)).
Additional Information on Michigan Broker Disclosure Requirements
If you have a specific question about disclosure requirements, want to get the very latest news about developments in Michigan’s broker disclosure laws, or find yourself in situation where you need help, please consult an experienced local real estate lawyer. These laws can be complicated, and are best interpreted by professionals who handle such matters every day.