FACTS: A customer, who was relocating, contacted a broker for help in finding a home in North Carolina. After explaining NC agency and the Working With Real Estate Agents Disclosure, the customer entered into an exclusive buyer agency agreement with the broker.
From the onset of the relationship, the client shared with their buyer agent how excited they were to bring their new pontoon boat down to their new home. After viewing several properties, the client was ready to make an offer on a home in a newer subdivision. The property had a large driveway with plenty of room for their boat. The client also noticed that the neighboring property had a boat as well.
The buyer’s offer was accepted. Ther seller and buyer went under contract, and the transaction concluded successfully. The client moved into the property without any issues. However, a few months later, the client started getting notices with violations and fines from the Homeowner’s Association. Upon speaking with the HOA, the buyer was informed that the subdivision had restrictive covenants that did not allow recreational vehicles to be parked in the driveway of properties.
While the neighbor had a boat parked in their driveway, they were doing so in violation of the covenants and being fined as well.
ISSUE: Did the broker comply with N.C.G.S. §93A-6(a)(1)?
ANALYSIS: No. N.C.G.S. § 93A-6(a)(1) states that the Commission has power to suspend or revoke at any time a license issued under the provisions of this Chapter, or to reprimand or censure any licensee, if following a hearing, the Commission adjudges the licensee to be guilty of making any willful or negligent misrepresentation or any willful or negligent omission of material fact.
A material fact is any fact that could affect a reasonable person’s decision to buy, sell, or lease real property. Therefore, a broker has an affirmative duty to take reasonable steps to discover and disclose material facts to all parties in a transaction. Additionally, brokers are expected to take reasonable steps to discover all pertinent facts that are necessary to serve their clients’ interest. In this case study, the broker neglected to verify information that was of special importance to their client, having a pontoon boat parked at their property.
The Commission also determines whether or not a broker knew of the existence of a material fact by analyzing documents and reviewing written correspondence. The Commission uses the Reasonableness Standard to evaluate a broker’s duty to discover and disclose material facts. This standard dictates that a broker has a duty to discover and disclose any particular material fact if a reasonably knowledgeable and prudent broker would have discovered the fact during the course of the transaction and while acquiring information about the property.
In this scenario, the broker neglected to discuss the possibility of restrictive covenants with their client. While the broker would not necessarily be expected to interpret the covenants, they would be expected to provide the covenants and caution the buyer to take notice of recreational vehicles and/or boats. The broker did not act like a reasonably prudent broker because theyfailed to properly discover and disclose a material fact of special importance to their client. Every broker must exercise reasonable care and diligence in timely discovering and disclosing material facts to all interested parties in a transaction in adherence to N.C.G.S. § 93A-6(a)(1).
As a result of this omission and the broker’s failure to adhere to N.C.G.S. § 93A-6(a)(1), the broker may be subject to disciplinary action by the Commission.
Resources:
N.C.G.S. § 93A-6(a)(1), 93A-6(a)(8), and 93A-6(a)(10)
License Law and Commission Rules: Rule 58A .0114(c)
Articles: 2022-2023 General Update Course
2018-2019 General Update Course