A material fact is ANY fact that could affect a reasonable person’s decision to buy, sell, or lease.
The four categories of material facts are:
- facts about the property itself,
- facts that relate directly to the property,
- facts directly affecting the principal’s ability to complete the transaction, and
- facts that are known to be of special importance to a party.
A broker has an affirmative duty to discover and disclose material facts to all parties in a transaction.
Brokers are expected to take reasonable steps to discover all pertinent facts about a property that are necessary to serve their client’s interest.
The mandatory disclosure of material facts includes disclosure of:
- facts about the property that the broker knows exist,
- facts about the property the broker reasonably should know exist, and
- information that is considered common knowledge.
Listing agents are expected to:
- accurately gather all information about a listed property necessary to effectively market the property; and
- comply with disclosure requirements to prospective buyers.
Buyer’s agents are expected to:
- assist buyer-clients in obtaining any information related to the property; and
- gather specific property information that is of particular interest to the buyer-clients.
Any information that may affect the principal’s rights and interests or influence their decision in the transaction must be disclosed, such as:
- the other party’s willingness to agree to a price or terms different from those previously stated,
- the other party’s motivation for engaging in the transaction, or
- any other information that might affect the principal’s rights and interests or influence the principal’s decision in a transaction.
State and fair housing laws excuse the disclosure of certain facts that seem material such as:
- disclosing the death or serious illness of a previous property occupant, or
- disclosing a convicted sex offender occupying, having occupied, or residing near a property,
State and fair housing laws prohibit:
- disclosing a current or former occupants’ AIDS/HIV status.
Brokers must discover and disclose material facts to all interested parties in the transaction.
A broker must disclose a material fact or potential material fact to a client/ customer so they can possess adequate knowledge to:
- make an intelligent decision regarding a property,
- negotiate repair services, or
- decide to terminate the contract.
The Commission determines whether or not a broker knew the existence of a material fact by:
- analyzing documents,
- written correspondence, and
- interviewing individuals involved in the transaction.
An examination of public records and educational resources are used by the Commission to determine whether or not a broker should reasonably know a material fact about a property.
The Commission uses the Reasonableness Standard to evaluate a broker’s duty to discover and disclose material facts.
A broker has a duty to discover and disclose any material fact if a reasonably knowledgeable and prudent broker would have discovered the fact during the course of the transaction.
A red flag is the presence of any fact or issue that should make a reasonably prudent broker working with the buyer or seller suspect that the information provided by another party may be incorrect.
Red flags can be:
- stains on the ceiling, floor, or in the cabinet,
- discolored flooring,
- absence of septic permits,
- unpermitted spaces,
- leaks,
- stream in the backyard,
- cracked foundational issues, or
- miscalculations of square footage.
If red flags are present, a broker must conduct additional research by:
- asking the owner about known issues with the property
- measuring the property or hiring a vendor to measure the property if there is a discrepancy (e.g. red flag) in square footage,
- asking the owner to provide service records for repairs conducted on the property,
- researching the existence of septic permits and building permits with the local municipality, or
- advising the client to hire an inspector and/or contractor to estimate and/or repair issues.
Common knowledge is defined as knowledge that is widely or generally known to everyone or nearly everyone in a community and can be obtained in a multitude of ways.
The listing agent is responsible for verifying the accuracy of property data and the discovery of material facts.
The listing agent can compile accurate property data and discover material facts
by:
- conducting a visual inspection of the property,
- asking the seller questions about the property, and
- obtaining copies of documentation regarding repairs and renovations.
Brokers should ensure they are timely disclosing material facts to all parties in a transaction.
Timely disclosure of material facts occurs when:
- the listing agent discloses the existence of a material fact in the description of any advertisement or property listing, and/or
- before prospective buyers and/or agents view the property.
A listing agent should consider the following best practices before listing a
property:
- state their duty to discover and disclose material facts under License Law to their clients/consumers,
- evaluate and conduct a preliminary inspection of the property to determine if any “red flags” exists before making any statements,
- research issues on the property to determine if they were repaired and the likelihood of the issue existing in the future,
- interview the seller about repair timelines and prior records of completion,
- determine the seller’s willingness to repair the defects, and
- disclose the defects to all parties in the transaction.
If the listing agent is informed of material facts after they have listed the property, the material facts should be disclosed immediately to all parties in the transaction.
A buyer agent has a responsibility to inquire about the presence of material facts
for their client.
A buyer agent may rely on the accuracy of the property information provided by the listing agent unless the buyer agent reasonably suspects that the information may be inaccurate.
A buyer agent has a duty to verify issues that their clients have identified as
being material. This can be ANYTHING that is of concern to them.
As a best practice, a buyer agent should:
- research zoning codes/requirements of a property,
- determine facts of special interest or relevance to their client,
- research property-specific information,
- evaluate and visually inspect a property for issues, and
- inquire with the listing agent about the presence of material facts for their client. Always call the listing agent to see if any material facts have been discovered that weren’t disclosed in the Residential Property Disclosure (RPD)
The Home Inspection
A home inspection consists of a written evaluation of two or more of the
following components of a residential building: heating system, cooling system,
plumbing system, electrical system, structural components, foundation, roof,
masonry structure, exterior, and interior components, or any other related
residential housing component.
A home inspection is important because it evaluates the condition of the property on the day it is inspected.
Homebuyers are not required to conduct a home inspection prior to purchasing a property; however, brokers are encouraged to advise their clients to conduct a home inspection.
They should thoroughly review the home inspection report with the client. If the broker or client has any questions about items discussed in the report, the broker should ask for clarification or an explanation from the home inspector.
The broker also has an affirmative duty to disclose any and all material facts identified in the inspection report.
A broker should not attempt to interpret the home inspection report or the condition of the property.
Did they get a Permit?
Brokers are not expected to know all of the requirements for obtaining a building permit.
Red flags may exist when a seller has:
- added,
- replaced,
- repaired, and/or
- changed some item that affects the structure or the plumbing, HVAC or electrical systems of the property.
If a red flag exists, brokers should ask questions to obtain more information, such as:
- What renovations were performed?
- Who performed the renovations (i.e. licensed contractor/vendor)?
- Did you obtain a permit for the renovations?
Brokers should contact the local building inspection office to verify whether:
- permits and/or occupational licenses were required, and
- permits were pulled, and obtain copies of the permits.
- If a broker discovers that the seller failed to obtain a required permit or failed to hire a licensed professional when a license was required, then the broker must disclose this material fact to all prospective buyers, even if the seller chooses not to disclose it.
Reporting Square Footage
A Commission publication entitled, Residential Square Footage Guidelines is available to assist brokers with measuring, calculating, and reporting (both orally and in writing) the living area contained in detached and attached single-family residential dwellings.
Brokers are not required by License Law or Commission rules to report the square footage of properties offered for sale (or rent); however, when they do report square footage, it is essential that the information they give is accurate.
• Brokers cannot use tax records or blueprints as a resource for square footage measurements.
• Brokers should not use an old appraisal or old MLS listing description as a resource for square footage measurements.
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• Unpermitted additions to a property should not be included in the overall square footage of the property. The unpermitted section should be included in the description separately and disclosed to all of the parties in writing.
• Brokers must research the type of septic system a property has due to it being a material fact.
• A septic permit is important because it sets the capacity limit for the system and specifies the number of bedrooms for a residence, or the maximum number of rooms or some other measure for a nonresidential structure.
• Brokers can contact the local Health Department in the county in which the property is located to obtain a copy of the septic permit.