Full Disclosure Requirements for Real Estate Brokers and Agents

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What Full Disclosure Requirements Do Real Estate Professionals Need to Follow?

In a real estate transaction, brokers and agents are key parties that help carry out the sale. Brokers and agents represent the buyer or seller and assist with showing property or acting as an intermediary between the parties.

However, a broker has more education and training, performs more technical tasks like contract drafting and negotiations, is always licensed, and often oversees agents that work on their behalf.

Under state and federal laws, real estate professionals have disclosure duties to their clients and the other party. It is essential to fully disclose all information important to the sale, which could affect a buyer’s decision to purchase. Full disclosure provides the parties to a transaction all the details needed to evaluate the property, decide to move forward or reject a sale, and successfully negotiate.

Real estate professionals must know what information they need to disclose to their clients and the other party. This information includes hazards, defects, and other various factors. If you are a seller or buyer and your agent fails to follow the principle of full disclosure, you may be able to file a lawsuit and recover damages.

What Information Must a Real Estate Professional Disclose During a Transaction?

Real estate professionals that represent buyers must find out from their clients any known hazards or defects on the property and other factors that could affect the sale. They should then disclose these defects to the seller’s representative. The seller’s agent should discuss the defects with their client to determine if they are still interested or want to negotiate.

The duty to disclose known hazards and defects on the property is arguably the most critical one. This information will almost always affect the buyer’s view of the sale and their ultimate offer if any.

Federal law requires that sellers disclose whether houses built before 1978 have lead-based paint. State laws vary on what constitutes mandatory full disclosure. Some material defects a seller may need to disclose are:

Structural defects, like foundation issues;
Plumbing problems;
Presence of mold;
Termite or pest issues; and
Whether the house is in a flood zone.

Real estate brokers and agents also have a fiduciary duty to disclose other information to potential buyers and sellers. These disclosures include things that would influence sale value, negotiations, and moving forward. Some examples of other things that warrant full disclosure include:

Offers from other potential buyers;

Whether either party will move on their sale price/offer (if the client gives the go-ahead);
The seller’s urgency to sell the property;
Conflicts of interest; and
Property value estimate.

The above are just some common examples of hazards, defects, and other factors a real estate agent or broker may need to disclose during a sale fully. Besides mandatory federal disclosures, state law will dictate what needs to be disclosed in a particular area.

How Do Local Laws Differ?

State and local laws differ in their disclosure provisions. Sellers should check into the requirements for the location they are considering. Some local disclosure laws have loopholes. Local legalities can usually be obtained from local and state real estate planning departments. You may need to consult a real estate attorney.

Knowing the types of information that should be disclosed can help you decide on buying a property, or if you’re the seller, it can protect you from a lawsuit.

How Should Real Estate Professionals Make Sale Disclosures?

Sellers and real estate professionals must disclose all known defects and hazards on a property. While a seller needs to be truthful, their agent also needs to investigate to make sure all known hazards and defects are fully disclosed to potential buyers.

Unknown defects are not subject to full disclosure requirements, as in defects that the owner and professional were unaware of. However, if the seller and real estate professional fail to perform due diligence and miss something they should have caught, this could lead to liability for non-disclosure. It is best practice to disclose suspected issues and complete an appropriate investigation.

Any disclosures made to the other party should generally always be in writing—this protects everyone involved if there are disputes over disclosures down the road. Many states provide a form to use for these disclosures. If this is the case, real estate professionals should provide their seller clients with standard property disclosure statement forms to fill out and transmit to buyers.

What If a Real Estate Professional Fails to Disclose Material Information Fully?

If a real estate agent or broker fails to make required full disclosures, either the buyer or seller may have grounds for a lawsuit to recover damages. This may include the following:

Economic Damages: which could include lost profits or money for repairs;

Non-Economic Damages: like pain and suffering resulting from the breach of fiduciary duty; or

Punitive Damages: which may only be available for very serious non-disclosures. These damages are meant to punish very egregious behavior, like the failure to disclose a known defect that ended up severely affecting a buyer’s health.

In case of the failure to fully disclose, getting all aspects of a sale in writing is highly important. Keep all documents and records regarding dealings with the real estate professionals involved in the sale. Some essential documents are home disclosure forms and conversations regarding offers.

What Are Common Real Estate Seller Disclosures to be Aware of?

The following are some very common real estate seller disclosures to be aware of, regardless of whether you’re on the buyer’s side or the seller’s side —

Death in the home: Some buyers have concerns or superstitions about purchasing a home in which someone has died. Disclosure might be required. Each state has slightly different requirements for disclosure. In some states, deaths from natural causes, suicides, or accidents unrelated to the property may not have to be disclosed. However, sellers may be required to disclose deaths related to the property’s condition or violent crimes.

Neighborhood Nuisances: A noise or odor from a source outside the property could irritate the property’s occupants. Some states require sellers to disclose noises, odors, smoke, or other nuisances from commercial, industrial, or military sources affecting the property. Other states require sellers to disclose farms, farm operations, landfills, airports, shooting ranges, and other nuisances in the vicinity of the property.

Hazards: If a home is at an increased risk of damage from a natural disaster or environmental contamination, you may be required to disclose this information to a buyer. Some states require sellers to disclose the presence of hazardous or toxic waste, asbestos, radon gas, and lead-based paint.

Do I Need to Hire a Lawyer If I Have an Issue with a Failure to Disclose a Real Estate Defect?

Some states require having a real estate lawyer involved in property sales, adding another layer of protection for the parties. However, even if your state does not require this, you may want to consider consulting a local real estate lawyer before completing a sale to help ensure that all laws were followed regarding full disclosure. If there is a disclosure dispute in the future, a lawyer can also help you file a lawsuit and represent your interests in court.

Craig Cherney is a trusted client advisor and a sought after real estate expert witness who is hired by the nation’s top Real Estate Litigation Attorneys to help resolve their litigated real property matters. Craig has appeared as a testifying expert witness before judges and juries in California, Arizona, Nevada and other jurisdictions across the country. Craig Cherney, Esq. Expert Witness Real Estate. 480-399-2342.