We all know what a material fact is, right? It’s drilled into brokers in pre-licensing and all three post-licensing classes. Then why do almost half of the disciplinary cases coming before the Commission involve material facts?
Let’s review- a material fact is any fact that could affect a reasonable person’s decision to buy, sell, or lease real property. The four categories of material facts are: facts about the property itself; facts that relate directly to the property; facts directly affecting the principal’s ability to complete the transaction; and facts that are known to be of special importance to a party.
Some facts are ALWAYS material and must be disclosed because a reasonable person will always want to know that fact. For example, whether a property is in a flood zone, whether a property is located in a neighborhood with restrictive covenants, whether there is a homeowner’s association, or whether the property’s electrical system has an obvious malfunction, will always be material facts that a broker has a duty to make reasonable efforts to discover, and then disclose.
Some facts about a property will only become material based on the specific wishes, wants, or needs of the party. For example, if a buyer has small children who go to bed early, the buyer may tell their buyer agent they do not want to buy a home in an area where there is going to be a lot of noise or traffic at night – like close to the neighborhood bar featuring live outdoor music. In this situation, because the buyer expressed a need for quiet, the buyer’s agent should ask questions and investigate the area around the prospective property to make sure that it fits their client’s specific needs.
What should a broker do if they discover something that should be disclosed after they list a property? Recently a broker found out the hard way that you MUST immediately disclose a material fact once you learn of it, even if your seller is going to try to fix it.
Here are the facts- A seller went under contract with a buyer who had a radon test done in the home. The test results were way over the EPA’s “safe” limit on radon (4.0 pCi/L) and the first buyer terminated the contract during the due diligence period. The broker advised his client to install a radon mitigation system, which they agreed to do, but did NOT install the system prior to other potential buyers viewing the property and they did not disclose the high radon reading to other prospective buyers.
Remember that sellers have a different duty than brokers regarding material facts. You will note that when you read the Residential Property and Owners’ Association Disclosure Statement (RPOADS), it states that: “If something happens to make the Disclosure Statement incorrect or inaccurate (for example, the roof begins to leak), the owner must promptly give the buyer an updated Disclosure Statement or correct the problem.”
However, licensed brokers must always disclose material facts about the property, even if the seller updates the RPOADS or plans to correct the problem. When this broker learned of the high radon reading, the broker had a duty to disclose the reading. He could not rely on the fact that his sellers were planning to lower the radon levels by installing a radon mitigation system at some point. This was an intentional omission of a material fact, and the broker was disciplined by the Commission after a hearing.
The radon mitigation system, once in place, remains material in that it is an entirely new system in the property that requires ongoing monitoring and maintenance to assure that a safety hazard otherwise impacting the property stays properly under control. The existence of such a system may impact the decision-making of a reasonably prudent buyer.
Let’s talk what is NOT going to get you in trouble with the Real Estate Commission- DISCLOSURE. If it’s a material fact, DISCLOSE IT, and do it early, often, and ideally, in writing. (While a writing is not required, it’s recommended for your protection.) If you have a question about whether it’s a material fact, disclose it early, often, and in writing.