Case Study: Material Facts

FACTS: A broker listed a property for a seller and received several offers on the property in a short time frame.

The listing broker discussed the offers with the seller, and helped the seller evaluate the offers. After further negotiation, the seller accepted a 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 had a home inspection performed. The inspection indicated that the home had some significant electrical and plumbing issues.  The buyer agent shared these issues with the listing agent and tried to negotiate for the costs of repairs, but the parties could not come to an agreement.  The buyer terminated the contract before the due diligence period ended and received their earnest money deposit back.

The listing agent re-listed the subject property making no changes to the listing.  A potential buyer who was previously interested in the property wanted to submit an offer.  The buyer asked the listing agent the reason why the property was relisted. The listing agent informed the buyer that the previous buyer had financing issues.  The new potential buyer submitted an offer on the property.

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 the power to suspend or revoke at any time a license, or to reprimand 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. 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 listing broker misrepresented the reason the previous buyer canceled their contract. The listing broker had actual knowledge of the plumbing and electrical issues.

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 misrepresented the reason the previous buyer terminated their contract. The listing broker did not act like a reasonably prudent broker because theyfailed to disclose the true reason for the terminated contract. Additionally, the listing broker had knowledge of the electrical and plumbing issues and had a duty to disclose those material facts to additional parties. After the prospective buyer terminated the contract, the listing agent failed to revise the property description prior to re-listing the property and misrepresented known material facts. 

The listing broker had a duty to disclose the issues with the plumbing and electrical systems in the house. The listing broker’s assertion that the terminated contract resulted from financing issues 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).

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 may be subject to disciplinary action by the Commission.


N.C.G.S. § 93A-6(a)(1), 93A-6(a)(8), and 93A-6(a)(10)

License Law and Commission Rules: Rule 58A .0110

Articles: 2022-2023 General Update Course

2019-2020 General Update Course