Home Sales in New York: What the Listing Broker Must Disclose

When you decide to sell your New York home, you might try to sell it yourself, or you might hire a real estate broker to help you. If you hire a broker, you will have a close working relationship with that person, who will learn a lot about the property. This raises the question: How much information about your property can and should your broker share with prospective buyers? This article will explore that question.

Your Listing Broker Will Learn Things About the Property That Buyers Would Want to Know

First, a little background. Upon hiring the broker, you will be asked to sign a contract (the "listing agreement") authorizing the "listing broker" and one or more sales agents working for them, to offer the property for sale at a certain price (the "asking price") and will describe the commission arrangement. The contract will also authorize the listing broker and sales agent to enter the property into a multiple listing service (an electronic database of information about properties offered for sale, often called the MLS).

The listing broker will then help you set the asking price, communicate with prospective buyers and their brokers—called buyers' brokers—and generally help you through the contracting, inspection, and closing process. To perform these functions, the listing broker is likely to receive detailed information about the property from professional appraisals, inspection reports, and surveys.

A prospective buyer may also hire a broker to help find properties and to act as a guide through the purchasing process. During the property search, inspection, and contract negotiation, the buyer will often ask both brokers questions about the condition of the property—that is, whether it has any known defects. This is the point where you, as the seller, might wish your broker didn't have to talk. But they do have obligations to disclose material issues to buyers.

Background on New York Listing Broker's Limited Duty to Disclose

For decades, the tradition in New York courts was to apply the rule of "caveat emptor" or "let the buyer beware." The buyer was responsible for inspecting and finding defects in the property before the purchase, and the listing brokers generally had no duty to say a word.

Then courts began adding exceptions to New York's legal approach. If, for example, the listing broker passed information about the property from the seller to the buyer that the broker actually knew was false, or if the listing broker omitted material facts about known defects, the listing broker could be held liable to the buyer for damages; but only if the misinformation, or omitted information, was material to the buyer's decision to purchase the property and the buyer relied upon the listing broker's statements in making the final purchase decision. If the buyer's inspection revealed any information that could lead to knowledge of property defects, the buyer could not claim reliance on the broker's statements.

Although caveat emptor is still operative, recent court rulings have softened its application to real estate brokers, in order to better protect buyers. What's more, the New York legislature amended the law governing real estate broker licensing to add certain disclosure requirements (in 2002), and added more disclosure requirements with the passage of the Property Condition Disclosure Act (the PCDA). (N.Y. Real Prop. Law § § 460-467.)

What New York Listing Brokers' Must Disclose to Sellers and Buyers

First off, a property's listing broker is required to advise the seller (their client) about the disclosure requirements contained in the PCDA before any buyer signs the real estate purchase contract. The listing broker will usually provide a blank disclosure statement form for the seller to complete, but is not legally required to do so.

The listing broker is also supposed to notify the buyer about the PCDA if the buyer is not represented by a broker. A listing broker who performs these actions in a timely manner will not be liable for any violation of the PCDA.

For more information on the contents and purpose of the PCDA, see New York State Home Sellers: Disclosures Required Under State Law.

This comes from Article 12-A of the Real Property Law. (N.Y. Real Prop. Law §§ 440-443) as administered through the Department of State Division of Licensing. So, for example, if the broker lies about mold in the walls or puts a potted plant over a hole in the floor, they could lose their license.

But that's not all. If the broker knows of a material defect, or knows that the seller has misrepresented the condition of the property, the law requires the broker to fully disclose the relevant information to the buyer or buyer's broker. The main limit is that a broker is not required to inspect the property to discover defects or to verify the seller's claims about the property prior to telling the buyer what the seller has said about it.

Then again, if a New York listing broker uses any of the seller's statements in marketing or advertising materials for the property, the broker is required to verify them. Let's say, for instance, that the seller assures the buyer that the wood paneling is redwood when it's really fir. It will be up to the broker to figure that out and publish the truth.

What New York Listing Brokers May Not Disclose to Buyers

There are some issues the broker must absolutely keep quiet about. In 1995, to settle a growing controversy over what were called "stigmatized properties," the New York legislature amended the broker licensing laws to relieve brokers from any duty to disclose the following:

• that a previous owner or occupant of the property had, or was suspected of having had, HIV, AIDS, or other unspecified diseases unlikely to be easily transmittable through occupancy of a dwelling place, or
• that the property was the site of a felony such as a homicide, a suicide, or another death.

This means that buyers can't sue brokers who fail to disclose the excluded matters; nor can the brokers face discipline over such acts. (N.Y. Real Prop. Law § 443-A.)

However, the buyer may make a written inquiry to the seller's agent, or directly to the seller, for this information. The seller can choose not to respond to the inquiry. If the seller chooses not to respond, the listing broker shall not respond.

Disclosure Obligations in a Dual Agency Arrangement

It is not unusual for a brokerage firm to represent both sellers and buyers. If the buyer wishes to see a property the broker has listed for a seller, the broker may become the agent of both seller and buyer—called a dual agent.

There's a problem with representing both the seller and the buyer, however: a dual agent cannot maintain the same level of loyalty and confidentiality to either. The rule of "caveat emptor" will not apply, and the listing broker will need to make disclosures of known facts about the property to the buyer.

To ensure that the special relationship of the dual agency is explained to both parties, the New York legislature passed a strict broker-relationship disclosure law. The dual agent is legally required to give a disclosure form to both parties and to obtain their consent to the relationship.

The language of the disclosure form, called the Disclosure Regarding Real Estate Agency Relationships, is set by the law, and describes the duties and loyalties owed by the dual agent to each party and the potentially competing interests. (N.Y. Real Prop. Law § 443-A.)

New York Buyer's Broker Disclosure Requirements

Unlike a listing broker, or a dual agent, a New York buyer's broker is exclusively the agent of the buyer, representing the interests of the buyer only. The buyer's broker owes the buyer undivided loyalty, and must make a complete disclosure of everything known about the property to the buyer.

However, a buyer's broker is not required to make any independent inspection of the property to learn about property defects. It is still up to the buyer to hire inspectors and make appropriate inquiries about the property.

For further information on New York real property broker disclosure requirements, consult an experienced real estate attorney.