Broker’s Duty to Take “Reasonable Steps” to Disclose Material Facts

QUESTION: A buyer client recently went under contract to purchase a house on a wooded lot in a rural community. During the due diligence period, we discovered that there was a large animal cemetery on the property with a substantial number of unmarked graves. My client was uncomfortable with the situation and chose to terminate. We notified the listing agent that the cemetery should have been disclosed and that my client was entitled to a refund of her due diligence fee. The listing agent said that the cemetery had been disclosed. When I asked how the disclosure had been made, he referred me to the septic permit that had been attached to his MLS Listing as an exhibit. Sure enough, a diagram on that permit referenced a cemetery. Is that type of disclosure considered adequate?

ANSWER: We wrote recently to set forth some guidelines on where and when a material fact must be disclosed. You can read that Q&A here. In it, we wrote that the Real Estate Commission has suggested several possible options for where a listing broker’s required disclosure should take place. One of those options is in the remarks section of their MLS listing. We recommended that listing agents disclose material facts in the public remarks section in order to ensure that their disclosure reaches the widest possible audience.

The disclosure you described appears to have been designed to do the exact opposite. The presence of a substantial number of unmarked graves on a residential property is a fact that most buyers would consider material. However, the listing agent clearly chose not to mention it in either the public remarks or the agent remarks sections of his listing.

The new Residential Property and Owners’ Association Disclosure Statement which will be released by the Commission later this year contains several instructions to brokers. Two of those are in bold print. One reads as follows: “Regardless of the responses of the seller, a broker shall take reasonable steps to disclose material facts about the subject property which the broker knows or reasonably should know and shall not rely on the owner’s representations.” The key words are “reasonable steps.” The listing agent in your transaction did not take reasonable steps to disclose a material fact. That failure would give your buyer a strong legal argument in the event she decides to pursue a legal claim for the recovery of her due diligence fee.