Duty to disclose material facts – items listed on repair request

QUESTION: I represent a seller. The house went under contract and the buyer engaged a home inspector. During the due diligence period, the buyer submitted a Due  Diligence Request and Agreement (Standard Form 310-T) that listed several requested repairs. Some of the repairs were significant (an HVAC unit that must be replaced)  and some were extremely minor (door stops that needed adjusting). The parties were unable to reach agreement on the repairs and the buyer terminated the contract. Now  that the house is back on the market, do I have to disclose all of the items that were listed on the first buyer’s Form 310-T, even the minor ones?

ANSWER: The general rule, which is codified in both the North Carolina Real Estate License Law and the REALTOR® Code of Ethics, is that real estate agents must make a  full and prompt disclosure of all facts that are material to a transaction they are involved in. The duty of disclosure relates not only to material facts the agent knows but also  to material facts about which the agent should reasonably have known.

Defining what facts are material is admittedly difficult. In the Real Estate Manual published by the North Carolina Real Estate Commission, the authors write: “[A]ny definition  necessarily will be somewhat vague because the concept is intended to have broad application, thereby defying specific definition. This is complicated by the fact that a given fact may be considered “material” and require disclosure in one context, but not in another. In its broadest sense, a “material fact” may be said to be any fact that is important  or relevant to the issue at hand.”

When dealing with facts about the property itself, the Real Estate Manual states that any “significant property defect or abnormality” is a material fact. Examples given are a  structural defect, a malfunctioning system, a leaking roof, or a drainage or flooding problem.

Applying this guidance to the facts here, it is important to distinguish between what the listing agent was told and what the agent knew. If the buyer in this case merely  requested that the HVAC system be replaced without providing a report by a qualified inspector, the listing agent arguably does not know that the HVAC unit really requires  replacement. However, at a minimum, the request for this “repair” is a red flag and the listing agent should inquire further. If buyer number one did provide an inspection  report that noted a faulty HVAC unit, or if the agent confirms a problem with the HVAC unit, the agent would clearly have a duty to disclose that defect to subsequent buyers.  It does not matter that this fact was not known when the property was originally listed for sale, nor does it matter that a previous buyer (or their inspector) was the source of  the listing agent’s knowledge.

In contrast, just because the listing agent has learned that some door stops may need adjusting does not transform that exceedingly minor “defect” into a material fact. That is not something that needs to be investigated further or disclosed to subsequent buyers. Other examples of non-material defects include a dripping faucet, and cosmetic items  like scratches on a hardwood floor and cracked ceramic tiles.