The other day I was finished shopping at my local home depot, went to my car in the parking lot, backed up and quickly learned the car opposite me was backing up as well. My SUV locked bumpers with him Dodge Ram pick up. We both reacted quick enough and it turned out to be a touch but no damage. We shook hands and drove off. I later thought I just missed kissing $1,000 good bye. It was that close.
Everyday, with every transaction, you often do not know how close you may come to a malpractice, misrepresentation or fraud claim. Even if you are innocent the heartbreak of the monetary cost will pale in comparison to defending your reputation and perhaps your license
A material fact is the critical factor in such claims. The definition and law of material fact will vary amongst states but the term can be represented as “a fact that a reasonable buyer would consider important in deciding to purchase and on what terms”.
What you say about terms and conditions, what you don’t say in response to question and your actions can establish grounds for misrepresentation. Be careful because as a professional your discourse is no casual conversation with a friend, it should be a measured response of what is known and what is true.
Much of material fact is covered by the disclosures in a written disclosure by the seller. Remember, that is the seller’s disclosure. You only get involved if you verify the contents. How old is the roof? It is about 15 years old. The correct answer may be I don’t know. Is it close to the elementary school. It is a short walk. It is not short if grandma walks a five year old each day. Materiality is relative. The buyer hates gardening, hates lawn care. You say it is a small yard but there is plenty of room for tinkering in the garden. The bus stop. Is it close to the bus stop. I have not ridden a bus in 50 years. It does not matter to me. But what is you ride the bus to work and can fired for being late. Only say what you know to be true. You are likely not an engineer, roofer, electrician, attorney, CPA. You are an excellent licensee.
There is simple negligence. This has two types of triggers. First, (1) what was known about the property and not disclosed. (2) What the agent should have known. Most states limit what the agent should know and disclosed to the property. But if you are asked if the neighborhood is safe, or if there are good schools nearby or is this a good price, then you venture beyond the property, thereby accept risk and still remain with the bounds of a claim of simple negligence. Don’t answer if you do not know.
This can lead to a charge of negligent misrepresentation, which is the “lack of care” in either or both obtaining and or delivering accurate information to the other party. That is why it is called negligent. That is because a court decides you were not thorough when faced with the task or research. You do not have to go beyond your expertise. But when you venture an answer make sure it is true and responsive.
Enough about material facts. We can next talk about fraud. Never in a million years. Don’t count it out. You might have the best of intentions. Fraud is (1) statement of material fact; (2) that you know to be false, (3) intending to influence the other party and as it turns out the party can say they relied on that statement.
Follow these suggestions to stay away from the risk of such claims.
1. Advise the seller and follow you own advice to disclose known material facts and defects are disclosed to the buyer.
2. Assure the seller is advise of the obligation to disclose know material facts. (Remember material facts are somewhat relative so be liberal in your judgment of what is material.)
3. If you know of a material fact and your seller refuses to disclose, you have an ethical responsibility to disclose or in a worst case scenario, consult your broker, an attorney but you may have to walk away from the listing
4. Do not, do not, do not complete the disclosure on behalf of the seller
5. If any mistake or misstatement is made, see that it is immediately corrected
6. Memorialize in your notes or confirm with an email what was received from your seller and have a receipt to show it was delivered to the buyer
7. Consider the purchase of Errors and Omissions Insurance. Prices will vary, as does limits of coverage, but for $300 to $750 per year you can find coverage that protects you from the legal expense of defending yourself.