By Robert S. Kutner, Esq. Partner, Casner & Edwards
The Massachusetts Consumer Protection Act, Chapter 93A, continues to be a source of claims against real estate agents. Regulations of the Attorney General explaining Chapter 93A provide that it is a violation when: “Any person or other legal entity subject to this act fails to disclose to a buyer or prospective buyer any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.”
Chapter 93A requires that a real estate agent volunteer the information, even if the real estate salesperson is not asked. Buyers’ attorneys often refer to this regulation to claim that every listing agent has a duty to discover defects with a property being sold, making the agent into a guarantor of every possible problem from termite infestation to mold to wet basements to zoning issues. That is not true.
In a 1993 lawsuit, Underwood v. Risman, the Massachusetts Association of REALTORS® narrowed the impact of the regulation. The Supreme Judicial Court ruled that under Chapter 93A there is only a duty to disclose known facts. There is no duty to discover problems, nor is there a duty to warn about possible problems, or even probable problems. Only facts known by the agent must be disclosed.
Known Fact or Not
One of the lingering questions that nags REALTORS® is which statements they receive are considered “facts” that require disclosure and which statements are not considered to be “facts.” Suppose a buyer decides not to purchase due to an “unsatisfactory” inspection. A specific reason may be passed along to the listing agent. The listing agent’s dilemma then becomes how to determine if the statement is considered to be a “fact” that is required to be disclosed to future prospective buyers.
This determination often depends on the qualifications of the person who is the source of the “information.” When a qualified professional, such as a licensed home inspector or engineer, provides information about a specific issue based upon the person’s education, training, experience, as well as observations or testing, the views expressed will usually be considered to rise to the level of “facts” that require disclosure. On the other hand, an issue claimed to have been identified by an untrained person is more likely to be viewed as an opinion that does not fall within the disclosure requirement.
While there is no case precedent or regulation that provides comprehensive guidance, in a 1981 decision of the Appellate Division of the District Court, Jepson v. Barrett, the court ruled that a broker was not liable for failing to inform a buyer that a non-expert neighbor had told the broker that the private well on the property produced an insufficient quantity of water. Because the opinion was from a non-expert and because the neighbor’s daughter was also competing to buy the property, the court found no liability of the broker. Failure to make a disclosure, even from an untrained person, may lead to an unwanted lawsuit. Therefore, when in doubt—disclose.
Duty to Your Client
Sometimes it is not possible to determine with certainty who is the source of the buyer’s stated reason for withdrawal. If the buyer has not identified a specific defect, but only general dissatisfaction with the condition of the property, the listing agent does not have a duty to obtain a copy of the home inspection report to determine the specific work required or to try to identify a specific problem.
For example, if all the listing agent is told is that the buyer is concerned about possible insect infestation and is terminating due to lack of satisfaction, the reason is more likely to be considered to be one that is legally not required to be disclosed. However, while disclosure of the buyer’s opinion may not be legally required, in the litigation climate brokers face, the best practice is to make a disclosure.
The counter-argument is that listing agents owe fiduciary duties to their clients—the sellers—suggesting that the listing agent refrain from unnecessarily identifying unsubstantiated defects or issues merely suspected by an unqualified person. Before disclosure is made, the agent should discuss the disclosure of the unqualified person’s claimed defect with the seller. The seller may be able to clarify the problem as one that was previously corrected or one that can be corrected immediately. Alternatively, the seller may want to hire an inspector to counter the unfounded claims of the buyer’s inspector or buyer. In such cases, it is recommended that disclosure be made of both the problem identified by the buyer who withdrew as well as report from the seller’s inspector or from the seller concerning treatment. It is recommended that the listing agent not make a unilateral decision to withhold a disclosure, believing that the seller or seller’s inspector’s is accurate. Let the buyer make that decision.
In a slow real estate market, the seller may discourage the listing agent from making a disclosure of a problem reported by the withdrawing buyer. When faced with a reluctant seller, the agent may explain that if a new buyer discovers the same problem after a purchase, a lawsuit may be filed against both the seller and the broker for non-disclosure. By making a disclosure, the risk to both the seller and agent is eliminated. Therefore, it is best to err on the side of full disclosure.
Attorneys representing real estate agents urge that all disclosures be made in writing, so that the agent can prove when and to whom the disclosures were made. Having the buyer sign a disclosure, such as in the MAR form “Seller’s Statement of Property Condition,” is one method. If you cannot get the seller or buyer to sign a disclosure, alternatives include sending a fax or e-mail to the buyer or buyer’s agent with the information so you have a record of delivery.
An agent should not give the home inspection report from the withdrawing buyer to another buyer without permission. Doing so could create bad will of the buyer or a claim by the inspector.