Christine, a real estate agent, is on her way to meet with a new set of clients. The clients want to list their home for sale.
As Christine walks up to the front door, she notices that several slats are missing from the railing around the front porch. She rings the doorbell, meets the clients, and takes a tour of the home. As they are sitting at the table, filling out the listing agreement and the sales disclosure form, the owner says “the basement leaked a little bit last year, but we painted over the water mark.”
If you are the buyer of the property in a situation such as that described above, what can you expect the listing broker to tell you? That broker does, after all, represent the seller, not you. In most instances, you can expect the broker’s primary loyalties to reside with the seller. (The exception would be if you had agreed to “dual agency,” in which the broker represents both you and the seller, which is not a good idea.)
So, for instance, if the seller were desperate to sell and was actually willing to accept a far lower purchase price, that would never be something the listing broker would tell you.
The seller's agent must, however, treat you honestly and not knowingly give you any false information. What's more, there may be situations where a property has significant problems or risks that you or your home inspector may not be able to easily discover. When that happens, and the listing real estate agent knows about them, Indiana lawrequires the listing agent to tell prospective home buyers about the potentially hidden defects and risks. (See Indiana Code Section 25-34.1-10-10.)
In the scenario described above, Christine, the broker, would have a legal responsibility to tell potential buyers or their representatives that the basement had leaked in the past. Another example of a hidden defect would be a leak in the roof that has been cosmetically repaired. If the plumbing or electrical system has problems, the agent will need to disclose the information. Any potentially dangerous situations would fall into the “risk” category, such as a weak or rotting floorboard or stair riser.
Home sellers need to understand that the agent cannot be expected to hide home defects for them (not that the seller should be attempting to hide anything in the first place). If an agent discloses such information to a potential buyer, he or she is doing so because of a legal duty. Failure to make the disclosure not only opens the real estate agent up to potential liability (i.e. lawsuits by buyers), but is also a potential licensing violation.
The listing agent’s duty to the buyer under the statute goes only so far as disclosing problems that “could not be discovered by a reasonable and timely inspection of the property.” If a problem is easily noticeable – like missing slats on the porch, a hole in the dry wall, or a defined water ring on a ceiling or around the base of a room -- the agent is under no duty to point out the defects in the property to prospective buyers.
What’s more, there may be many problems with a property that neither the listing agent nor the seller know about, which is why it’s important for prospective home buyers to include an inspection contingency in their purchase agreement and hire a professional inspector to thoroughly examine the place.
For more information on assessing the physical condition of a house for sale, see the articles in the “Home Inspections and Appraisals” section of Nolo’s website.