By Stephen L. Fussell, Senior Consumer Protection Officer
One of the most frequent types of complaints the Commission receives from consumers alleges that material facts were omitted or misrepresented. As you know, a material fact is any information that would affect a reasonable person’s decision to buy, sell or lease. Brokers are required to disclose material facts to all interested parties. Moreover, a broker representing the owner of a property offered for sale or lease has an added duty to discover as well as disclose material facts.
When investigating a complaint in which it is alleged that a broker omitted or misrepresented a material fact, the Commission assesses what the broker knew or reasonably should have known about the fact in question. To determine what a broker actually knew, we review transaction documents and written communications and interview persons involved either directly or indirectly with the transaction.
To determine what a broker reasonably should have known, we examine public records and ascertain whether the broker has taken relevant courses or has had access to publications, such as the Commission’s Real Estate Bulletin, that would have educated the broker on the topic in question. We also consider whether the material fact was common knowledge.
What is common knowledge? It is knowledge that is widely or generally known to everyone or nearly everyone in a community. For example, it is common knowledge in the real estate brokerage community that a person must obtain a real estate license from the Real Estate Commission and maintain the license on current, active status in order to engage in real estate brokerage activities and be eligible to receive compensation for those activities.
In order to acquire common knowledge, brokers should thoroughly familiarize themselves with the area(s) in which they work. This may be accomplished by reading local newspapers, watching local TV news, conducting online research, attending continuing education courses, talking to other local brokers, etc. In other words, a broker should become an expert on his or her market area. This is important for all transactions, especially those in which the parties are not familiar with the area and brokers become the primary source of information.
Brokers who receive opportunities to handle transactions outside of their areas of expertise should either partner with or refer the opportunities to brokers with knowledge and experience in such areas. Brokers who undertake to handle transactions in unfamiliar areas will be held responsible for any adverse consequences that arise as a result of ignorance and/or incompetence. North Carolina General Statute §93A-6(a)(8) authorizes the Commission to pursue disciplinary action against a broker who is unworthy or incompetent and acts in a manner which endangers the public.
Brokers cannot use common knowledge as a defense for omitting material facts. In other words, a broker cannot claim that a prospective buyer or tenant should have known about a material fact in an attempt to relieve the broker of his or her duty to disclose it. Brokers must disclose all material facts including those considered common knowledge. For the protection of the broker and all parties, it is best to make such disclosures in writing.
Prospective buyers, sellers, landlords and tenants depend upon their agents to inform and guide them in making good decisions. Brokers can only accomplish this if they acquire and then share relevant knowledge with their clients and customers. Brokers should therefore strive to be aware of common knowledge as well as all other property-specific and area-specific knowledge necessary to carry out their duties effectively.
Examples of Common Knowledge
• A plan by the North Carolina Department of Transportation (“NCDOT”) to construct or widen a roadway that has been publicized on the NCDOT’s website (www.ncdot.gov/projects/), in local newspapers, and/or on local TV;
• A city’s plan to annex an area which will double the annexed area’s property taxes and which has caused much debate in public hearings and in local media;
• The fact that when a strong Nor’easter hits some coastal communities, there is increased risk of beach erosion causing loss of dunes, street flooding, and damage to ocean-front homes;
• The fact that a storm drainage system in a neighborhood is inadequate to handle the abundance of storm water produced by thunderstorms causing widespread flooding when the citizens in the neighborhood have filed a highly-publicized lawsuit against the city to get the city to take corrective action;
• The designation of a large commercial property as a Superfund site by the Environmental Protection Agency along with significant publicity that no cleanup efforts have been undertaken; and
• The location of a train station through which loud freight trains routinely pass during the early hours of the morning, where local residents have complained publicly for many years.
This article came from the May 2014-Vol45-1 edition of the bulletin.