FACTS: A broker listed a seller’s family home for sale. The broker informed the seller about the purpose and requirements of the Residential Property and Owners’ Association Disclosure Statement (RPOADS). Having not lived in the home for several years, the seller had limited knowledge about the property’s condition. The broker clarified that the seller could choose to make no representations regarding the home’s condition without misrepresenting it.
The seller felt overwhelmed by the information requested and decided to make no representations. The listing agent further explained the broker’s duty to disclose any material facts and/or defects and pointed out a few issues the broker noticed during the walk-through. The RPOADS remained unchanged, but the broker did list the discussed defects in the property description. The broker did note several areas of pooling water in the backyard but failed to do any further investigation and made no disclosures.
The property sold quickly in a cash transaction. Several months later, the home flooded during tropical storms. Following the flooding, the new owner learned that the property was located in a federal flood plain. The previous owner did not carry flood insurance and had marked “No Representation” for questions about flooding on the RPOADS. Since the buyer did not use a lender, flood insurance wasn’t required.
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’ interest. In this case study, the listing broker neglected to investigate the property properly.
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 neglected to perform further research on the property to discover that it was in a federal flood zone. The listing broker did not act like a reasonably prudent broker because they failed to gather relevant facts about the property itself. The Commission expects brokers to know or research whether a property they have listed is in a flood zone. 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 omission 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.
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
Articles: 2022-2023 General Update Course