legallines Disclosure issues

REALTORS® have to be familiar with a wide range of laws, but one of the most complicated areas involves disclosing property condition issues. For a listing agent, deciding whether something must be disclosed to a prospective buyer is not always easy. This is especially complicated because listing agents have greater disclosure obligations to purchasers than their seller clients have to purchasers.

A property owner died in his home and was not A: This is a sad situation that raises serious disclosure Q:discovered for several days. As a result, the prop- issues. erty had a very bad odor. The owner’s heirs, who were A listing agent must disclose to prospective purchas- selling the property, hired a company to remediate the ers all “material adverse facts pertaining to the physical issue but the odor came back after several days. A new condition of the property which are actually known” remediator attempted to fix the problem but the odor by the listing agent. Something is “material” if it could again came back. This process was repeated a third time affect the decision of a reasonable person as to whether but was unsuccessful. to purchase. During the time period of these remediation Reasonable people could disagree, but I believe the attempts, a purchase contract was entered into and a listing agent must disclose the issue to the purchaser. home inspection was completed. The inspection did not It would be difficult to argue that the odor couldn’t note any odor and the purchaser did not say anything affect the decision of a reasonable person to purchase about the smell. (“material”); it pertains to the physical condition of the As the listing agent, do I have to disclose the issue? property – something is causing the odor; it is adverse;

VOLUME 20 ● ISSUE 6 WINTER 2013/2014 11 legallines VAR Legal Hotline (804) 622-7955 Monday through Friday, 10 a.m. – 4 p.m. The VAR Legal Hotline is a free, and the agent has actual knowledge A: Again, reasonable people can members-only benefi t for brokers. of the issue. disagree as to whether this is a You can receive answers to questions about material adverse fact pertaining to Virginia real estate law, and timely information Q: Isn’t there a specific law that the physical condition of the prop- on legal and regulatory issues concerning the real estate industry. exempts disclosing that someone has erty. However, if the listing agent The Legal Hotline provides legal information, died in the property? believes it is, he must disclose it not legal services. You should consult your A: Section 55-524 of the Code of despite the sellers’ command. attorney if you need representation or advice. Virginia states: Generally, listing agents have “…no cause of action shall a duty of confi dentiality to their You must register for the Hotline before you arise against an owner or clients and they may not disclose can call. Registration is free and quick. Go to www.VARealtor.com/legalhotline; you will a real estate licensee for certain information without client need your NRDS ID number. failure to disclose that an permission. However, the duty of occupant of the subject real confi dentiality does not apply when Who can use the Hotline? property…was affl icted with the listing agent is compelled by UÊ You must be a principal or supervising broker.* human immunodefi ciency law to make a disclosure. The law UÊ You must be a VAR member. virus (HIV) or that the real requires listing agents to disclose UÊ You must have registered for the Hotline (see above). property was the site of: material adverse facts pertaining UÊ You must have your NRDS ID number available 1. An act or occurrence to the physical condition of the when you call. which had no eff ect on the property regardless of their clients’ (* Each offi ce can have one other person designated by the physical structure of the real direction. principal broker for Hotline access.) property, its physical envi- E-mailing the Hotline Q: ronment, or the improve- If a qualified professional states he You can e-mail your questions to ments located thereon; or eliminated the odor on the third try, [email protected]. 2. A homicide, felony, or would the listing agent have to dis- UÊ Responses will be by phone; we no longer suicide.” close anything related to the previous provide written answers to Hotline questions. Normally, there is no require- remediation attempts? UÊ You must include your full name, phone number, and NRDS ID. We cannot respond ment to disclose a previous owner’s A: Listing agents must disclose to messages that do not include all three. death to a prospective purchaser. existing material adverse facts, and UÊ We will try to respond within 24 hours, but However, in this case the death not repair or remediation history, response time depends on Hotline activity. did have an eff ect on the home’s unless that history itself suggests an physical structure and environment. ongoing problem. Not a broker or member? Therefore, I believe it is discloseable. For example, if a qualifi ed If you aren’t eligible to use the Hotline, you can browse and search our Hotline archives at contractor repairs a roof leak and www.VARealtor.com/hotlinearchive Q: Doesn’t it matter that the buyer no further leaks occur there is and fi nd more legal and risk management infor- ordered an inspection and nothing nothing to disclose. However, if the mation in VAR’s Legal Resources Center at was noted about the issue? roof continues to leak even after www.VARealtor.com/legalresources. A: Just because a buyer doesn’t multiple repairs, then the repair You will need your NRDS ID number to log discover a material adverse fact history is relevant and requires a into the site. doesn’t mean the listing agent disclosure. Questions? doesn’t have to disclose it. In this case the problem keeps If you have questions about the Hotline, contact coming back, so the remediation VAR at (800) 755-8271 or (804) 264-5033, or by Q: What if the sellers forbid me from history suggests an ongoing prob- e-mail at [email protected] disclosing this issue? lem that would likely have to be The VAR Legal Hotline should not replace your own legal counsel. We will not answer questions on matters 12 WINTER 2013/2014 unrelated to real estateWWW.VAREALTOR.COM or real estate brokerage, nor can we help with pending arbitrations. disclosed. That being said, if the QUICK REVIEW problem were actually corrected What are material adverse facts pertaining to the physical condition of by a qualifi ed professional then no the property? Also, when does a licensee actually “know” something disclosure would have to be made. for disclosure purposes? The Code of Virginia obligates listing agents to disclose to prospec- Q: In discussing this situation with tive purchasers all “material adverse facts pertaining to the physical several REALTORS®, one said that he condition of the property which are actually known” by the listing tells his sellers not to tell him about agent. these things so he doesn’t have to Material. Something is material if it could affect the decision of a disclose them to purchasers. Should reasonable person about whether to buy. REALTORS® tell clients not to tell Adverse fact. Contrast this with “defect.” Consider the example of them problems with the property so a residence having polybutylene pipes and fi ttings that haven’t leaked they don’t have to disclose them? yet. Their existence is probably an adverse fact (buyers will want to A: This is an age-old problem. Yes, check it carefully, especially the fi ttings) but not a defect if everything the listing agent has greater dis- is properly functioning now. In short, at least consider that “adverse closure obligations than does the fact” may be more broadly construed than “defect.” seller, and it could potentially be Pertaining to the physical condition of the property. The statute pro- an advantage for the seller to use vides that “the term ‘physical condition of the property’ shall refer to a listing agent who knows noth- the physical condition of the land and any improvements thereon, ing. However, listing agents should and shall not refer to: (i) matters outside the boundaries of the land or never counsel sellers to keep relating to adjacent or other properties in proximity thereto, (ii) mat- property condition issues to them- ters relating to governmental land use regulations, and (iii) matters selves lest they be passed on to the relating to highways or public streets” (section 54.1-2131B). buyer. When the buyer ultimately Actually known by the licensee. When do you actually know some- discovers the problem, he’ll never thing? First, remember that only material issues are subject to the believe you didn’t know. Imagine obligation to disclose. Remember that receipt of the entire inspection yourself on the witness stand report probably imposes a duty to read it and determine what is and trying to convince the judge you is not material. The report you receive may confl ict with a prior report, were ignorant after you confess and may be prepared by a “super-picky” inspector. With dueling to urging the seller not to tell you inspectors, try to put the two together, which resolves a large major- anything so you could keep the ity of all confl icts. If the two still don’t agree, a third opinion may be buyer in the dark. Not going to be necessary. a pretty picture. The course that makes the most sense for both seller and listing fi rm is either to (i) address the problem up front – fi x it; or (ii) disclose it and adjust the buyer’s expectations accordingly. Anything else courts complaints, suits, and very unhappy consumers. ●

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