What is a Material Fact?

Failure to disclose material facts continues to be the most common complaint from consumers.  In an effort to reduce the number of complaints, this article provides information about how brokers can discover material facts. 

Let’s start with the basics.  A material fact is any fact that could affect a reasonable person’s decision to buy, sell, or lease real property.  All brokers have a duty to discover and disclose material facts, as mandated by General Statute 93A-6(a)(1) and by Commission Rule 58A .0114(c).  These legal requirements create an affirmative duty, meaning brokers cannot simply say I didn’t know about this fact.  All brokers, whether a buyer agent or a listing agent, must take action to discover and disclose.

When you are listing a property for sale or rent, or representing a buyer or tenant, consider using the following four categories as a checklist for discovering material facts.

1. Facts About the Property Itself

This category includes issues or defects about the property and its improvements, such as structural defects, malfunctioning systems, etc. The Commission recommends that brokers conduct a visual inspection of properties prior to listing or advising buyers on offers. During a visual inspection, a broker should be looking for material facts and red flags.

A red flag is the presence of any fact or issue that should make a reasonably prudent broker working with a buyer or seller suspect a defect, concern, or question exists that requires further investigation or review, or that indicates. that the information provided by another party may be incorrect or incomplete. Some questions that brokers may want to check during a visual inspection include some of the following:

• Outside, does the property look well maintained? For example, are the roof shingles in good shape, or are they curling or missing here and there?
• Are there any obvious visible signs of deterioration in the foundation?
• Are there any areas or signs of water intrusion inside or outside – including on the ceiling, floors, or walls?
• Do all the doors open smoothly? 
• Do the floors feel uneven?
• Is the home on septic or sewer? 
• Does it appear that there has been a room addition?

Performing your own visual inspection and gaining familiarity with your local permitting offices will assist you in your duty to discover and disclose material facts.   

2. Facts that Relate Directly to the Property

This category includes factors that are external to the property, or outside the property lines, that affect the use, desirability, or value.  Some factors that affect the use of the property are zoning and restrictive covenants. 

Zoning will ultimately affect how a property can be used by the owner.  For instance, zoning affects whether or not a property can be used for residential, commercial, mixed use, etc. Restrictive covenants can also limit a property’s use or impose special requirements. If a broker has promised a buyer that the broker will find a property for the buyer’s intended use (operating a business out of the home, raising chickens, parking an RV), brokers should research the zoning and restrictions on the use of the property to determine whether or not the property can be used for the buyer’s purpose.

There are many other factors that can also affect desirability or value, including the status of nearby roads for maintenance or construction, proximity to a landfill or airport, and school assignments.

Brokers can discover these and other facts that relate directly to the property by driving around the neighborhood, asking the seller or listing agent, conducting online research, being familiar with local government offices that handle zoning and permitting, and being knowledgeable about the geographical area in which they work.

3. Facts Directly Affecting the Principal’s Ability to Complete the Transaction

This category includes any fact that might adversely affect the ability of a principal to consummate the transaction, such as a:

• buyer’s inability to qualify for a loan,
• buyer’s inability to close on a home without selling a currently owned home, and/or
• seller’s inability to convey clear title due to various reasons (foreclosure, liens or judgments against the property, bankruptcy, or a previous spouse or heir with claims to the property).

These facts are not as easily determined as others, but brokers should make reasonable inquiries of the parties.

4. Facts That are Known to be of Special Importance to a Party

This category includes facts of special interest or importance to a party.  For example, a buyer may not wish to purchase a home that:

• has specific zoning ordinances,
• is within a certain neighborhood,
• is Within the city limits, and/or
• previously occupied by a pet.

When a buyer has special needs for the property the broker must take extra steps to assure that the property fulfills the buyers’ purpose, or, clearly articulate to the buyers that they must make their own investigation of these issues.