Pertinent Facts: Disclose vs Discover

Dear Shannon: Shortly after a listing broker closed the sale of a home, the buyer filed a complaint alleging that the listing broker violated Article 2 of the Code of Ethics, saying he failed to disclose a substantial fact concerning the property – that the house was not connected to the city sanitary sewage system, but rather had a septic tank.

In a statement to the association’s Grievance Committee, the buyer said the subject wasn’t discussed during his various conversations with the listing broker. However, the buyer also said that he discovered, on his own, that the house’s street was “sewered,” so he naturally assumed the house was connected.

After closing and the septic discover, the buyer did more research and found that every other house on the street for several blocks in both directions was connected to the local sewer system. He stated that the listing broker, in not having disclosed this exceptional situation, had failed to disclose a pertinent fact.

However, the hearing panel ruled in the listing broker’s favor. How could a hearing panel determine that this is NOT a violation of the code? Doesn’t the listing broker have a duty to disclose pertinent facts about the property? – Shocked

Dear Shocked: Thank you for reaching out on this. This is not an uncommon situation. Your question is: Doesn’t the listing broker have a duty to disclose pertinent facts about the property?

Let’s look at Article 2 which states: “Realtors® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. Realtors® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, or to disclose facts which are confidential under the scope of agency or non-agency relationships as defined by state law. (Amended 1/00)”

Does the listing broker have a duty to disclose pertinent facts about the property? Notice the plain language of Article 2; “Realtors® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” The answer is yes, Realtors® have a duty not to conceal pertinent facts relating to the property.

But wait, Article 2 goes on to say in part; “Realtors® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, …”

In the hearing, the listing broker offered the following defense:

1. He didn’t know the house wasn’t connected to the sewer
2. He had not represented it as connected in any advertising
3. He never orally stated that the house was connected, a point the buyer conceded
4. It was common knowledge that most if not all area houses were connected to the sewer
5. When the broker took the listing, the seller said the house was connected to the sewer

The panel determined that the absence of a sewer connection where other houses were connected was a substantial and pertinent fact in the transaction – but the broker could not have discovered that the sewer wasn’t connected in the course of a visual inspection. Further, the listing broker had made appropriate inquiries of the seller and was entitled to rely on the representations of the seller. The panel concluded that the listing broker was not in violation of Article 2.

Note: This article is based on NAR case study #2-4. However, the issue of disclosing sewer vs septic is a hot topic with potential liability for both sellers and Realtors.

From a Code of Ethics perspective, you generally can rely on a seller’s information, and you’re generally not obligated to discover latent defects outside the scope of your real estate license. Conservatively, however, you should do some level of reasonable confirmation (e.g. put seller’s answers in writing, etc.).

Additional conservative guidance includes:

• encourage sellers to do their due diligence in determining whether the house is connected to sewer or not (e.g. sellers should look carefully at their utility bills, etc.)
• use seller’s property disclosure form
• be the source of the source of information. If you state in the MLS that the home is on “sewer,” then state who told you that, such as “per seller” or “per public records.” If you don’t know the source of info, say something like, “Listing agent has not confirmed whether home is on sewer or not, buyer advised to confirm”

If you advertise that a home is on sewer and fail to disclose the source, you could be liable to buyer for:

1. The cost to connect the property to sewer or
2. The cost to repair any defects with the septic tank discovered by the buyer after closing.

A home with a septic tank is not necessarily less desirable, but it should be disclosed to give buyers the chance to inspect.

Shannon Allen is an attorney and Florida Realtors Director of Local Association Services
Note: Information deemed accurate on date of publication. Other laws and rules may apply.

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