FACTS: A provisional broker located a property for their buyer client. The description of the property indicated that the driveway encroached on the adjacent lot.
The provisional broker did not disclose the encroachment to their buyer client, inquire with the listing agent about the encroachment, or ask to view the property survey. After the provisional broker informed the buyer client about the property, the buyer client expressed an interest in viewing it.
After viewing the property, the buyer client asked the provisional broker to submit an offer on their behalf. The seller accepted the buyer’s offer and the parties went under contract for the property.
The contract allowed for a due diligence period for the buyer to conduct inspections on the property. During the due diligence period, the buyer hired vendors to conduct a home inspection and a survey. At the conclusion of the survey, the buyer was notified by the surveyor that the driveway of the property encroached on the adjacent lot.
The buyer asked the provisional broker about the encroachment. The provisional broker indicated that it was the duty of the listing agent to disclose the encroachment to all parties in the transaction. Subsequently, the buyer terminated the contract during the due diligence period.
ISSUE: Did the provisional broker comply with N.C.G.S. §93A-6(a)(1)?
ANALYSIS: No. N.C.G.S. §93A-6(a)(1) indicates 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. Therefore, a broker has an affirmative duty 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 scenario, the driveway encroaching on the adjacent lot is a fact about the property that the provisional broker should have timely disclosed to their buyer client.
Further, the Commission assesses whether or not a broker knew the existence of a material fact by analyzing documents and reviewing written correspondence. Essentially, 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 provisional broker was made aware via the property description that the driveway of the property encroached on the adjacent lot. Therefore, the provisional broker was aware of the existence of the encroachment prior to informing their client about the property’s availability and viewing it. Further, the provisional broker did not act like a reasonably prudent broker because theyfailed to ask additional questions about the encroachment or the property survey.
In this case, the provisional broker had a duty to investigate the encroachment and should have assisted the buyer-client in obtaining any information related to the encroachment and property. The provisional broker’s assertion that the discovery of the encroachment was the duty of the listing agent 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). Lastly, Rule 58A .0506 indicates that a provisional broker must be supervised by a broker-in-charge in order to conduct brokerage activity. The provisional broker failed to adhere to N.C.G.S. §93A-6(a)(1) and as a result, the provisional broker and broker-in-charge may be subject to disciplinary sanction 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 .0506
Articles: What is Common Knowledge?