Sellers’ Obligation to Disclose Latent Defects: Legal Liability and the Role of Brokers

In May 2024, the North Carolina Residential Property Owners’ Association Disclosure Statement (RPOADS) was revised to include the following statement under the General Instructions on Page 1:

This statement emphasizes and clarifies the sellers’ long-standing responsibility to disclose latent (hidden) defects in real estate transactions when the seller is aware of the defect, and it is not reasonably discoverable by the buyer. The statement also highlights the potential consequences sellers face if they fail to disclose known material defects. While the revision clarifies disclosure requirements, it does not introduce new legal obligations. North Carolina law has long held that sellers can be liable for misrepresentation, fraud, negligence, or engaging in unfair and deceptive trade practices if they knowingly withhold or misrepresent material defects. However, to be held liable, it must be proven that the:

• seller had actual knowledge of the defect, and
• seller intentionally misrepresented or failed to disclose the defect.

Because latent defects are hidden and not easily discovered through reasonable diligence, this often raises legal questions of proof. Nevertheless, North Carolina courts have established legal precedents for holding sellers accountable.

Legal Precedents in North Carolina

The following two court cases are significant in reinforcing that sellers may be civilly liable for the nondisclosure of known material defects that a diligent buyer was unable to discover:

• Everts vs. Parkinson (NC Court of Appeals, 2001); and
• Cummings v. Carroll (NC Supreme Court, 2021).

The Role of Brokers: Open and Honest Communication

Because latent defects are hidden, brokers may not have firsthand knowledge of them. This makes open and honest communication between brokers and sellers essential. Sellers must be forthcoming about any known issues, as brokers rely on the seller’s disclosures to provide accurate information to buyers. If a seller intentionally withholds a known hidden defect, they risk liability, which could have serious legal and financial consequences.

Brokers, in turn, must ensure that sellers understand their legal responsibilities and the potential risks of failing to disclose defects. This includes educating sellers about how nondisclosure could lead to civil penalties and legal action.

Conclusion

The revision to the General Instructions on the RPOADS serves as a critical reminder that sellers in North Carolina can be held liable for failing to disclose latent defects. If a seller knowingly hides a defect, they may face legal consequences. Given the hidden nature of these defects, brokers must facilitate transparent discussions with sellers to ensure compliance with disclosure laws. This protects not only buyers but also sellers from potential legal claims, reinforcing trust and integrity in real estate transactions.