Mr. Hart was looking to purchase a property near his parent’s house in a neighboring state. He found a home that fit his requirements listed by a local real estate agent, Mr. Wilson. Mr. Hart viewed the property and a few days later, bought it for an amount significantly below the market price.
Shortly after Mr. Hart spent a large sum renovating the property, a neighbor told him that the home’s original owner, Harley Smith, died under suspicious circumstances on the property.1
Several months after closing, Mr. Wilson received a claim from Mr. Hart alleging that he failed to disclose known history; claiming that he had asked Mr. Wilson why the property was listed below market price and specifically, if there were any deaths on the property.
Mr. Wilson claims he did not disclose that the previous owner had died under suspicious circumstances because Mr. Hart never asked.2
This case was eventually settled for $60,000. $50,000 on behalf of the agent, plus $10,000 contributed by the estate’s administrator. The defense costs amounted to approximately $25,000.
Inadequate disclosure, such as failure to disclose the known history of a property, is a significant problem giving rise to claims. Real estate professionals have an ethical duty to disclose known history to their clients. In addition to any ethical obligation, most states have real estate laws requiring that real estate professionals disclose known history of the property if asked by the consumer. If the question was asked, agents have an obligation under the applicable state statute to disclose the information. If the question was not asked, there is no duty to disclose.
Risk Factor #1
Because of their fiduciary duty, real estate agents cannot disclose confidential information without their client’s consent. However, when real estate agents become aware of conditions or known history of a property, the agents have an ethical obligation to disclose such information. Failure to do so is unethical and may be viewed as participation in fraud.
Risk Factor #2
Had the agent disclosed the known history of the property and documented in writing the conversation with the plaintiff, the allegation may have been avoided. Documentation serves as critical evidence supporting the agent’s work in the event of a dispute.