Will Our Real Estate Agent Tell Prospective Buyers About Home Defects?

The listing broker may have inside access to key facts, either from talking to the seller or walking around the house and property. Exactly how much of this information must the broker pass on to prospective buyers?

As a home seller, one of your important obligations is (according to the law of most states) to advise buyers concerning the physical condition of the property and related concerns (such as environmental hazards or neighborhood nuisances). You might be legally required to fill out a disclosure form concerning the property, which will in all likelihood be created by your state's real estate commission.

Some sellers mistakenly try to hide issues in an effort to keep the home price up, like a foundation that's crumbling, walls full of dry rot, or neighbors whose goats regularly leap the fence and destroy the landscaping. There are many reasons not to hide such things, however: You risk buyers becoming angry. If they discover the problems during a preclosing inspection, they may push back hard, and negotiate the price down. If they discover the problems after closing, they may sue you.

Consider also that you, as the seller, are not the sole source of information for prospective home buyers. The broker may have inside access to key facts as well, either from talking to you or from walking around the house and property, observing with expert eyes. Exactly how much of this information must the broker pass on to prospective buyers? And will the broker need to fill out a separate form for this?

What Governs Real Estate Brokers' Disclosure Obligations

Just as state law sets forth your disclosure obligations as a home seller, it may also address the issue of what brokers know (or have learned and observed) and should pass on to buyers. The relevant rules may be found in state statutes or administrative regulations governing real estate transactions or real estate agents' professional conduct. Separate fraud statutes may also prohibit brokers from lying or making misrepresentations to buyers in the course of a home sale.

In no state are disclosure expectations of brokers as high as those upon sellers. In particular, the broker is never required to independently investigate and determine whether a seller’s disclosures are accurate, or to perform his or her own investigations of the property. And brokers rarely have to fill out a standard, comprehensive form. After all, they haven't lived in the home.

(California is a notable exception, however. Real estate brokers there must fill out an Agent Inspection Disclosure form.)

What Most States' Laws Require of Real Estate Brokers Regarding Home Disclosures

Despite the fact that they aren't usually given a detailed form to fill out, expectations placed upon real estate brokers can be quite broad.

In Arizona, for example, the state Real Estate Department requires brokers to "disclose in writing to all other parties any information ... that materially or adversely affects the consideration to be paid by any party to the transaction, including: ... Any material defect existing in the property being transferred" or the "existence of a lien or encumbrance on the property...." (See Section R4-28-1101 of the Arizona Administrative Code.)

An Oklahoma listing broker must make sure the home seller’s disclosure statement and any amendments to it are available to any potential homebuyer before the seller accepts the buyer’s offer to purchase, as well as disclose to the purchaser any known defects in the property that were not mentioned in the disclosure statement. (See 60 Okla. Stat. § 836(A-B).)

In Washington State, the broker must disclose “material” physical defects of a property, but only those that the broker actually knows about and that would not be apparent or readily ascertainable to the buyer. There is no set method or deadline for how or when a Washington broker must disclose these. The broker must simply ensure that they are disclosed, either within the seller’s disclosure statement or otherwise, by either the seller or the broker. (See Revised Code of Washington, Sects. 18.86.010, 18.86.030.)

As you can see from these examples, state laws tend to regard brokers disclosures as a backup for what the home seller might have forgotten, failed to mention, or become blind to after years of living in the house.

Remember that not every state requires seller disclosures, however. In Wyoming, for instance, home sellers need not give buyers a formal disclosure statement, and courts enforce caveat emptor (“let the buyer beware”) clauses in purchase contracts. That means Wyoming judges may refuse to compensate buyers for defects found after the purchase unless the seller actually lied or did something to prevent the buyer from inspecting the property.

Yet even in Wyoming, the law states that “a broker shall disclose to any prospective buyer all adverse material facts actually known by the broker.” The meaning of “adverse material fact” is defined as any information that may pertain to the title and the physical condition of the property, any material defects, and any environmental hazards affecting it. Further, the broker “shall not perpetuate a material misrepresentation of the seller which the broker knows or should know is false.” (See Wyoming Code 33-28-303.)

Your broker or state real estate commission should be able to tell you more about specific disclosure obligations where your home is.

Are There Limits on What a Real Estate Broker Will Disclose to Buyers?

Your listing agent has a fiduciary duty to protect your interests, and the laws do not seek to interfere with that. So, for example, if you were to tell your broker that you were willing to lower your price if pushed, the broker should not reveal that to the buyer.

Also, some states laws expressly exclude certain information from broker disclosure requirements.

In Illinois, for instance, 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. (See 225 ILCS 454/15-20.)

And in Colorado, the seller’s broker need not tell buyers about deaths that occurred on the property, nor about any facts or suspicions regarding circumstances that may psychologically impact or stigmatize the property. (See C.R.S. § 12-61-804 (2)).

Again, check with your real estate broker or state commission on real estate for details. As a seller, it is important to know what your broker must tell buyers, so that you can properly advise the broker and avoid liability for misrepresentation or failure to disclose.

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