In a real estate transaction, brokers and agents are key parties that help carry out the sale. Both can represent the buyer or seller and will assist with tasks like 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 both state and federal laws, real estate professionals have disclosure duties to both their clients and the other party. It is important to fully disclose all information important to the sale and that could affect a buyer’s decision to purchase. Full disclosure provides the parties to a transaction all the details needed to evaluate the property, to make the decision to move forward or reject a sale, and for successful negotiations.

Real estate professionals have a duty to know what type of information they need to disclose to both their client and the other party. This 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 client any known hazards or defects on the property, as well as 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 and want to negotiate.

The duty to disclose known hazards and defects that are present 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 include:

  • 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. This includes 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 fully disclose during a sale. Besides mandatory federal disclosures, state law will dictate what needs to be disclosed in a certain area.

How Should Real Estate Professionals Make Sale Disclosures?

As discussed, sellers and real estate professionals must disclose all known defects and hazards present on a property. While a seller needs to be truthful, their agent also needs to do some investigation to make sure all known hazards and defects are fully disclosed to potential buyers.

Keep in mind that unknown defects are not subject to full disclosure requirements, as in defects that the owner and professional were not aware of. However, if the seller and real estate professional fail to perform due diligence and miss something that they should have caught, then this could lead to liability for non-disclosure. As such, 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 also provide a form to use for these disclosures. If this is the case, real estate professionals should provide their seller clients with any standard property disclosure statement forms to fill out and transmit to buyers.

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

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 an suffering resulting from the breach of fiduciary duty; and/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, it is highly important to get all aspects of a sale in writing. Keep all documents and records regarding dealings with the real estate professionals involved in the sale. Some important documents are home disclosure forms and conversations regarding offers.

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. This adds 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.