Listing agents must disclose material adverse facts pertaining to the physical condition of the property of which they have actual knowledge to the buyer. Do I as the listing agent have a duty to discover these facts? For example, am I required to investigate whether a house has defective piping?

No, you have a duty to disclose material adverse facts of which you have actual knowledge. If the seller doesn’t tell you about the problem, or it’s not obvious, you have no way of knowing about the condition and do not have a disclosure obligation.

This is not to suggest you should ever discourage your client from telling you of adverse facts. Oftentimes, problems may be corrected upfront instead of days before closing. Article 2 of the REALTOR® Code of Ethics provides further guidance on your discovery obligations.

Article 2

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)

Standard of Practice 2-1

REALTORS® shall only be obligated to discover and disclose adverse factors reasonably apparent to someone with expertise in those areas required by their real estate licensing authority. Article 2 does not impose upon the REALTOR® the obligation of expertise in other professional or technical disciplines. (Amended 1/96)

What are material adverse facts pertaining to the physical condition of the property? Also, when does a licensee actually “know” something for disclosure purposes?

Section 54.1-2131 of the Code of Virginia obligates listing agents to disclose to prospective purchasers all “material adverse facts pertaining to the physical condition of the property which are actually known by the licensee.”

  • Material. Something is material if it could affect the decision of a reasonable person about whether to buy.
  • Adverse fact. Contrast this with “defect.” Consider the example of a residence having polybutylene pipes and fittings that haven’t leaked yet. Their existence is probably an adverse fact (buyers will want to check it carefully, especially the fittings) but not a defect if everything is properly functioning now. In short, at least consider that “adverse fact” may be more broadly construed than “defect.” It can be looked at as whether the fact might be something that would make a reasonable buyer decide not to buy the house.
  • Pertaining to the physical condition of the property. The statute provides that “the term ‘physical condition of the property’ shall refer to the physical condition of the land and any improvements thereon, and shall not refer to (i) matters outside the boundaries of the land or relating to adjacent or other properties in proximity thereto, (ii) matters relating to governmental land use regulations, and (iii) matters relating to highways or public streets.”
  • Actually known by the licensee. When do you actually know something? First, remember that only material adverse facts are subject to the obligation to disclose. Remember that receipt of the entire inspection report probably imposes a duty to read it and determine what is and is not material. The report you receive may conflict with a prior report. With dueling inspectors, try to put the two together, which resolves a large majority of all conflicts. If the two still don’t agree, a third opinion may be necessary.
There was a mold problem that was remediated by a qualified professional; do I as the listing agent have to disclose that?

The listing agent must disclose problems that presently exist, and not repair or remediation history, unless that history itself suggests an ongoing problem. (For example, ten roof patches in the past year would likely suggest that a bigger problem still exists.) It is not always easy to know whether a problem has been fixed; but if it has been, you need not disclose it.

The key with mold is to understand that the underlying moisture problem must be addressed successfully. If it has not, no amount of remediation of the mold itself will matter. If it has, and the mold has been removed, there is nothing to disclose.

When does the Virginia Residential Disclosure Statement have to be provided?

The law requires the disclosure to be given to the buyer before contract ratification. “The owner … shall deliver to the purchaser the written disclosure statement required by this chapter prior to the acceptance of a real estate purchase contract ….” (VA Code § 55-520A). If this is not done, and the seller delivers the disclosure at the time of or after the acceptance of the contract, the purchaser has three days (or five days after postmark if mailed) to terminate (but not later than settlement). Thus the statute affords buyers the opportunity to know of issues (ex. sex offenders) and to check things out before being bound by the contract.

What is Virginia REALTORS®' Summary of Rights and Obligations of Sellers and Purchasers Under the Residential Property Disclosure Act form?

The Summary form is a form we at Virginia REALTORS® have prepared to assist agents in complying with the Act’s requirement that all agents inform the parties they work with of their rights and obligations under the Act. The Act does not require this form to be used, and doesn’t even require that the agent inform the parties in writing, but we think this form is a prudent way to proceed. We strongly suggest it be used, but if the agent has another way to inform the parties he works with, he can use it. Please note that your forms provider may have a similar form.

My seller knows about some problems with his house that could hurt his efforts to sell. Should I tell him not to tell me so I don’t have to disclose them?

This is an age-old problem, but it is what it is. Yes, the listing agent has greater disclosure obligations than does the seller, and it could potentially be an advantage for the seller to use a listing agent who is unaware. However, listing agents should never counsel sellers to keep property condition issues to themselves. The course that makes the most sense for both seller and listing firm is either to (i) address the problem up front – fix it; or (ii) disclose it and adjust the buyer’s expectations accordingly. Anything else might result in complaints, lawsuits, and very unhappy consumers.

What are the buyer agent’s duties to the buyer regarding material facts?

Virginia Code § 54.1-2132 states that a licensee engaged by a buyer must “[d]isclose to the buyer material facts related to the property or concerning the transaction of which the licensee has actual knowledge.” That is a broad obligation to the buyer, but note that it is conditioned on having actual knowledge of material facts. We are not inspectors and have no duty to discover material adverse facts such as asbestos. Furthermore, the Code of Ethics makes clear that REALTORS® are only obligated to discover and disclose adverse factors reasonably apparent to someone with expertise required by their licensing authority.

I am a buyer's agent on a foreclosed property owned by Bank X. The seller is requiring the buyer to sign a lead-based paint form that has not been filled out or signed by seller, before they will sign offer to purchase. How do I handle this?

Asking the buyer to sign a blank lead paint form not only makes no sense, but puts him at serious risk. When the buyer signs, he’s signing that he has received the disclosure required by law from the seller. However, he has not received it and to say that he has might cause him to forfeit his right to allege later that he did not get what the law required.

I am the listing agent and my client told me the house was on public sewer. I included that information in the MLS. Several months after closing the buyer contacted my firm with the news that the house was not on public sewer and the septic system just drenched his front yard. Do I face any liability?

No, Virginia REALTORS® supported legislation to limit your liability in such cases.

§ 54.1-2142.1. Liability for false information.

A licensee shall not be liable for providing false information if the information was (i) provided to the licensee by the licensee’s client; (ii) obtained from a governmental entity; (iii) obtained from a nongovernmental person or entity that obtained the information from a governmental entity; or (iv) obtained from a person licensed, certified, or registered to provide professional services in the Commonwealth, upon which the licensee relies, and the licensee did not (a) have actual knowledge that the information was false or (b) act in reckless disregard of the truth.

The owner had a licensed plumber do a new bathroom, but no permits were ever pulled or inspections done by the county. The work seems perfectly and professionally done. Must the listing agent disclose this to prospective buyers?

If the agent knows the repairs were done without permits, I think so. After all, the fact that improvements were done without the appropriate permits and inspections is a material adverse fact about this property. But I would start by suggesting seller to speak with counsel and to get the county out to inspect. If and when the problem is remediated, disclosure would no longer be required. Or you could just let the buyers decide, after informing them of the issue.

What if the seller never mentions the lack of permits? While Article 2 states REALTORS® are only obligated to discover adverse facts that would be reasonably apparent to someone with expertise in those areas, I would think that a seller telling you his entire bathroom has been remodeled, would call for a follow up question as to whether permits were properly pulled.

A commercial contract's feasibility study period had ended, the buyer had waived all rights to object to property condition issues, and the parties were on the way to settlement on an old office building. A neighboring property owner and competitor (a man who has expressed an interest in buying the building) tells the listing agent that the HVAC system is faulty and that the toilets in the basement back up and the sewer line could have to be jackhammered. The owner is a triple-net lease landlord who knows very little about the property, which has been maintained by the tenant for years. Does the listing agent have to disclose these things to the buyer?

I don’t think so. First, what does the listing broker actually know? This information is just rumor from a very unreliable source with a motive to tank the deal and try to pick the property himself. The Buyer is purchasing the property as is, has conducted a thorough inspection of the property (which would reveal plumbing and HVAC problems), and is apparently satisfied with its condition. This question illustrates an interesting point about when we know something, and is a good illustration of why hearsay is not admissible in court. Just because you hear something doesn’t mean you actually know it to be true.

A gas fireplace has no gas line hookup and no propane tank connection. The fireplace and insert are brand new, and would work perfectly with an energy source. Is it a misrepresentation to say that the fireplace is in “working order”?

I would think that in order for a fireplace to be in “working order,” it must actually light, and that is not possible without a fuel source. More importantly, the agent has no way of knowing whether the fireplace will work, even when a fuel source is connected. To protect everyone involved, the best practice here would be to disclose that although the fireplace and insert are new, there is currently no fuel connection set up.

A property has an underground storage tank (UST) with heating oil still in it, although the house is now heated by gas. The seller has signed a disclosure and has asked the listing agent not to disclose the existence of the tank to prospective buyers. Must the listing agent disclose the existence of the tank? Does it matter if the listing agent is also a dual agent? Isn’t this a good example of why sellers who know of problems should be encouraged not to inform the listing agent?

The listing agent should encourage the owner to find out what the law says about underground storage tanks and comply with the law. If the owner does not agree to do so, the listing agent must disclose the tank to buyers because this is, in my opinion, a material adverse fact about the physical condition of the property. It should not matter whether the agent is a dual agent, as the disclosure is required by law.

The second part of the question bears consideration. I think it would be a mistake for us to discourage sellers from disclosing to us the potential problems that exist with their homes. In the first place, we know that by far the best way for sellers to deal with problems is to fix them, because to do so enhances the value and marketability of the property and greatly reduces the likelihood that a dispute over the results of the home inspection will ruin the transaction. If the seller will not fix the problems, then disclosure is still preferred as it allows the seller and his agent to manage the buyer’s expectations in a reasonable way.