Discussing the disclosure of material facts
By Mario D’Artagnan
As continuing and post-license education requirements become due on March 31, 2010 for many licensees, I thought this would be a good time to discuss the disclosure of material facts. Segments are from Bert Rodgers Schools of Real Estate and used by permission.
Florida law requires the disclosure of material facts, those that materially affect the value of the property to the extent that if the information had been disclosed, the sales contract would not have been executed (signed).
Some examples of material facts are:
n Malfunctions in the major systems of a home, such as foundation, plumbing, electrical system, heating and air conditioning, siding windows, doors, wall and ceilings
n Damage to property due to fire, floods, hurricanes, sink holes, etc.
n Environmental hazards such as lead-based paint, asbestos, radon gas, contaminated soil or water
n Problems with termites and other pests
n Work done without building permits, such as wiring a shed, carpentry, or plumbing work
Disclosure of material facts has always been an ethical policy of Florida real estate practitioners, but is also a legal requirement. The 1985 Florida Supreme Court decision in Johnson v. Davis further obligated real estate licensees to disclose latent defects and to have the sellers disclose such defects. The court held that:
Where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer. This duty is equally applicable to all forms of real property, new and used. (Johnson v. Davis, 480 So. 2d [1985], 625, 629)
While it does not currently apply to commercial transactions, contractors, or developers, the courts could apply the Johnson ruling to commercial transaction. In a 1987 case, the court held that developers have a responsibility to advise buyers about latent (or hidden) defects in the conditions of subsoil. A latent defect is a problem with a property this is not readily observable.
The court stated:
What may be a latent defect to the average person may become a patent defect in the eyes of the person possessing superior knowledge. [The developer] knew that one or more material defects existed in this home prior to closing and that such defects were concealed from the buyer by non-disclosure. (U.S. Home v. Metro Property and Liability, 516 So. 2nd [Fla. 2d DCA 1987], 3)
In light of the courts’ liberal application of the Johnson ruling, real estate professionals have made a practice of requiring that sellers agree to latent defects clauses as part of employment agreements. An example of a latent defects clause follows:
Seller specifically acknowledges and understands that if Seller knows of facts materially affecting the value of the property, whether said facts are readily observable or not, the Seller is under a duty to disclose these facts to the buyer and to the real estate sales associate. Seller represents that Seller does not know of any material facts that affect the value of the property other than those that the buyer can readily observe or which are known by or have been disclosed to buyer.
While a latent defects clause requires that sellers acknowledge their duty, the clause alone usually does not provide an opportunity for the sellers to elaborate on what they know about the property. As a result, many brokerage firms require that sellers fill out a seller property disclosure form. This form usually resembles a questionnaire or a checklist and asks the sellers to give a detailed and comprehensive report on the property. The form has an area in which the sellers sign, thereby agreeing that the information can be given to prospective buyers.
Florida courts have indicated that sellers are not solely responsible for disclosure of material facts. The duty extends to the seller’s agents and any other brokers involved in the transaction (see Raynor v. Wise Realty Co. of Tallahassee, 504 So. 2e [Fla. 1st DCA 1987], 1361.
Brokers should advise sellers and buyers to hire expert inspection firms to discover hidden defects. An inspection can give sellers a defense against later lawsuits and provide the buyers with peace of mind.
The foregoing is not intended to be legal advice or recommendations. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. For more information about Bert Rodgers Schools, visit www.bertrodgers.com.
Mario D’Artagnan is a broker associate with The Jim Fischer Team at Gulf Coast Realty Network, Inc. Mario is a former Florida Real Estate Commission investigator, a former real estate instructor, and a published author. Mario is also a U.S. Air Force veteran. For more information or questions, contact Mr. D’Artagnan at: mariodartagnan@yahoo.com, or call 239-565-4445.