Material Facts: Who Knows Best?

The Problem

Too many buyers are suing agents for misrepresenting or failing to disclose material facts. Of course this only comes up after escrow has closed and the buyers discover these drawbacks to the property. What's really frustrating is that the detrimental items which should have been disclosed are frequently known to the seller, but not to the agents. Agents are sued for failure to know the facts and being motivated to hide them. It's true that agents want the buyer to purchase. Agents show off the best aspects of the property. But agents can always sell the buyer another property. The seller is the one who gains the most by having the transaction close. Why expect the agents to have more knowledge about the property than the seller? Why are agents blamed for not having x-ray vision? Do some sellers hide material facts? Yes. Do some sellers "put a spin" on troubling issues? Yes. Do some sellers misrepresent or overlook material facts? Yes. And here's the really sad part...buyers may want to believe! After all, buyers like the property enough to buy it!

What's our defense?

Since buyers may be starry-eyed about the property they have chosen, an agent's role is to be an extra set of eyes. Agents can and should point out potential problems, and recommend the buyer get outside inspections of the structural and perhaps troublesome components of the property. In addition to the standard pest control, pool, and home/contractor inspections, are there any other areas which are of interest or concern to the buyers? For example, if the buyers tell you they plan to remodel, expand, or rehab the property, recommend that they entertain outside bids as to what's involved before they close escrow. It doesn't do any good for them to discover that there are construction issues with area height restrictions, expanding a leach field, water or sewer hookups, and the like AFTER they have closed escrow.

One Solution
Presume the seller doesn't know everything. Recommend inspections by outside professionals, and note that you did this in your communication log. If a buyer doesn't want to spend the money on an inspection, make a note of that, and possibly put it in writing as a letter or email to the buyer. Many companies use a checklist of inspections, like the one I've seen by Professional Publishers. The checklist is great because the buyer initials in the column indicating that an inspection is authorized or declined. Let the buyers choose their inspectors. The buyer should use professional inspectors, not a friend or relative. There should be a written report of the findings, however brief. Keep copies in your transaction file, for at least three years. It seems that the buyer who doesn't want to spend money on inspections before escrow closes, always has enough money for an attorney after.

When Buyers Ask your Opinion

When a buyer asks a question about the property, an agent needs to be sure that the answer is correct, or at least came from a quoted source. An agent is responsible for information given to the buyer's questions. An agent is at risk if he or she merely gives an answer without indicating the source or whether or not the agent has determined that the answer is true. There are a few things we know for certain, and an overwhelming number of things that we do not. If a buyers asks "How big is an acre?", we can answer "43,560 square feet". If a buyer asks "How big is the lot?" we can answer "half an acre" only as long as we are ready to guarantee it! But where did that "half acre" figure come from? The seller? The MLS? The assessor's records? An appraisal? You get the point. Unless the agent has actually measured the lot size, and knows it to be truly a half-acre, don't give the size without qualifying your answer. It is critical to answer the buyer's question with the source of the information you're giving.

Here's another example. Buyer asks "How old is the roof?" The appropriate answer is "According to the (seller), it's (four years) old. I personally haven't verified this. Since the roof could be older, I recommend we get an inspector to verify what the (seller) is telling me." I recall a seller on one of my listings telling me that the roof was a couple of years old. It didn't look like it to me. I called the city and asked about a roof permit, since their records went back ten years. The city had nothing on file. So either the roof was done without a permit, or the seller was off by many years, or the city employee looked up the wrong file. Regardless, when the buyer asked about the roof, the buyer got the whole story, including my push to get a roof inspection to verify exactly what was real.

Do Agents Have to be Detectives?

Of course not, but we must be diligent in our disclosures. We also should direct buyers to the best source of the information they seek. If buyers want to know if they can expand the house, or if the non-conforming addition can be made into a legal unit, accompany them or send them directly to the local planning department to get accurate answers. There have been times when the local governmental agencies gave out incorrect information. If this erroneous information was given to the agent, and the agent then passes it on to the buyers, who gets blamed? Yes, the agent. It's a far better idea to accompany your buyers to the department to let buyers get the answers they need directly from the source.

On occasion, listing agents may want to check out information for themselves. That's a great plan and will demonstrate how diligently you work for your seller, or potential buyers. Just make sure to remember to attribute the source of your fact, and state if you can verify it or not. For example, when I had the listing with the questionable roof, I could have sent the buyers directly to the city to to check out the roof permit for themselves, but that wouldn't impress the buyers. Besides, I wanted to know, to verify the information given to me by the seller. It isn't required that agents sleuth out and verify answers to direct buyer questions. It is required that agents let buyers know where the answers came from and if the information is likely to be reliable, or not.

Good luck!