Duty to investigate and disclose “completed” repairs

QUESTION:  The most recent issue of the Real Estate Bulletin describes a case where a listing agent was disciplined for failing to disclose problems associated with the home’s foundation. Shortly after closing, the buyers discovered that cracks were forming on the home’s ceilings, molding was separating, and windows and doors were not closing properly. The buyers then discovered that at some point prior to listing the home, the sellers had hired a masonry company to jack up the house and repair the foundation. After the buyers filed a complaint with the Real Estate Commission, the listing agent initially stated that he had no knowledge of any foundation issues with the home. He noted that the sellers had completed a Residential Property Disclosure Statement and answered “no” to the questions about knowledge of foundation problems and structural changes to the property. However, when interviewed, the sellers stated that they had spoken to their agent “in general terms” about the foundation repairs and that he “did not make any further inquiries into these repairs”. In view of the fact that repairs to the foundation had been completed prior to the home being listed, what did the listing agent do wrong to deserve the discipline he received?

ANSWER:   From the facts presented, what seems clear is that whatever foundation repairs were completed prior to the sellers listing their home for sale, those repairs did not completely solve the home’s foundation problems. The issue presented by these facts is whether the listing agent should have ascertained that fact, and disclosed it to potential buyers.

The Real Estate Commission has consistently taken the position that licensed agents must disclose not only the material facts they know but also the material facts they reasonably should have known. If the agent is given information about a prior problem, and can reasonably conclude that the source of the problem has been identified and satisfactorily repaired, and that any damage caused by the problem has been satisfactorily repaired, then the agent would not be required to disclose any facts about the problem. In essence, a fully repaired “problem” is no longer a material fact.

What the recent disciplinary case teaches us is that where an allegedly repaired problem is significant enough in scope, it is not sufficient for an agent to merely ask his client if the problem has been repaired. The agent can’t put his head in the sand when he or she hears the word “repaired”; circumstances may impose a duty on the agent to inquire further. The scope of the inquiry required is difficult to define. It is safe to say that the more significant the allegedly repaired problem, and the more recent the repair, the greater the obligation to inquire and investigate. Appropriate inquiry/investigation could include requesting appropriate documentation from the contractor who performed the repairs, and perhaps even a telephone conversation with that contractor. Obtaining an opinion from a qualified contractor that the repairs are indeed complete would also be sufficient. Agents who conduct this type of inquiry and then document their actions will reduce or eliminate the risk of discipline.