When a buyer is looking for a dream home, the last thing he or she expects to find is a material defect that will change the dream into a nightmare. To avoid that scenario, a real estate agent has an obligation to make a full and timely disclosure of all known facts that are relevant or material to the condition and characteristics of the property under consideration.

Material Facts

A material fact is one that a reasonably prudent person would want to know before deciding whether to buy the property being offered or to accept an offer to sell. Material facts include information that would affect the decision as to the value of the property being sold or the value of property being offered in trade.

Material facts include, among others:

• property defects that are latent structural defects;
  
• major repairs that have recently been completed;
  
• defects in title;
  
• problems disclosed in a survey of the land;
  
• flood plain and environmental issues or conditions;
  
• zoning or building code violations;
  
• the existence of tenants and leases;
  
• the agent's opinion as to the property's value
  
• the other party's financial condition and motivation to buy or sell, including any time constraints;
  
• possible negotiating positions;
  
• existence of a family relationship between the other party and the agent;
  
• the existence of a financial relationship or commission splitting arrangement between the buyer's agent and the seller or the seller's agent;
  
• the existence of other offers;
  
• the status of earnest money deposits; and
  
• all provisions of the contract.

Actual and Constructive Knowledge

An agent who has actual knowledge of a material defect has an obligation to disclose that information to the buyer. If that information is not disclosed, the agent may be subject to liability in a civil court. An agent may be subject to civil liability if the agent's particular expertise in real estate should have put him or her on notice of a defect or of a duty to conduct a further investigation of a condition or characteristic of the property.

Full Disclosure

A seller's agent must disclose all material facts, regardless of when they are discovered and even if the information may adversely affect the completion of the sale. The facts must be disclosed even if the seller does not agree to the disclosure and instructs the agent not to disclose.

Many states have a checklist form that is completed by the seller, with the agent's help, that: (1) states that items checked have been inspected by the seller; (2) states that the seller is not aware of any items that are not in working condition, or a description of items that are not in working condition; and (3) contains an itemization of known defects or malfunctions in the structure and a description of the defects.

Liability for nondisclosure

A seller's agent who has actual or constructive knowledge of defects may be liable to a buyer. The buyer may obtain relief through arbitration or mediation, if the contract contains an arbitration or mediation clause, or by filing a civil lawsuit against the seller, the agent, the broker, or any combination, depending on who failed to disclose material facts or hidden defects.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.