FACTS: A broker listed a property for a seller and attached an expired septic permit.
The listing broker indicated in the property description that the property was a 4-bedroom, 3-bath residence but specified that it was the responsibility of the buyer agent and/or the prospective buyer to locate the current septic permit for the property. A prospective buyer was interested in the property and submitted an offer. The seller accepted the buyer’s offer and the parties went under contract for the property.
The contract allowed for a due diligence period. During this period, the buyer and buyer agent contacted the local municipality to inquire about the septic permit. They received a copy of the permit that indicated the property was permitted for 3 bedrooms.
Upon receipt of the current septic permit, the buyer agent notified the listing agent of the discrepancy in the property description and provided them a copy of the current septic permit. Based upon the information in the current septic permit, the prospective buyer decided to terminate the contract because it did not meet their residential needs.
The listing agent re-listed the subject property and attached the expired septic permit.
ISSUE: Did the listing 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’ interests. In this case study, the listing broker advertised that the property was a 4-bedroom, 3-bathroom home, which was incorrect based upon the septic permit for the property. Prior to listing the property, the listing broker should have verified the number of bedrooms that were permitted for the property by the local municipality.
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 listing broker attached an expired septic permit for the property and indicated that buyer agents and/or prospective buyers had a duty to verify the accuracy of the information. The listing broker did not act like a reasonably prudent broker because they failed to obtain the current septic permit and verify the accuracy of the property information prior to listing the property. Additionally, the listing broker was given a copy of the current septic permit by the buyer agent that indicated the property was only permitted for 3-bedrooms. After the prospective buyer terminated the contract, the listing agent failed to revise the property description prior to re-listing the property.
The listing broker had a duty to pull the septic permit and verify the accuracy of the information for the property prior to listing the property. The listing broker’s assertion that the discovery of the correct information regarding the number of bedrooms the property was permitted for was the duty of the buyer agent and/or prospective buyers is incorrect. Every broker must exercise reasonable care and diligence in discovering and disclosing all material facts to all interested parties in a timely manner in adherence to N.C.G.S. § 93A-6(a)(1).
Rule 58A .0110(g)(3) states that a broker-in-charge is responsible for all advertising by or in the name of the firm. As a result of this misrepresentation and the listing broker’s failure to adhere to N.C.G.S. § 93A-6(a)(1), the listing broker and broker-in-charge may be subject to disciplinary action by the Commission.
License Law and Commission Rules: Rule 58A .0110
Articles: 2022-2023 General Update Course