d. listing contracts & property disclosure

8/6/2019 D. Listing Contracts & Property Disclosure

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Listing Contracts & Property Disclosure 1


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Listing Contracts & Property DisclosureThe Concept o Negligent Omission

- Basic Situation

Key Point Negligent omission usually involves an agents unintentional ailure to

disclose a material act (such as a property deect) about which he/she had no actualknowledge when the agent should reasonably have known about such act.

Example: A listing agent is inspecting a house or a listing in January. The house isunusually cold, but the agent does not inquire about the condition o the heat pump,

nor does the agent turn on the heat pump to see i it is working. In act, the heat

pump is inoperative and the agent ails to discover the act. Consequently, this act

is not noted in the inormation provided to other agents and the buyer is not advised

o the inoperative heat pump prior to closing. An inoperative heat pump is clearly a

material act to most homebuyers. I the listing agent was negligent in not discoveringthe inoperative heat pump, then it is a act about which the agent reasonably should

have known and the agent would be guilty o negligent omission because the deect

was not disclosed due to the agents negligence.

Student Query Was the listing agent negligent in the above example?

- Another Common Condition

Key Point negligent omission may also involve an agents unintentional ailureto disclose a material act when the agent has actual knowledge o the act but

negligently ails to disclose the known act.

Example: Assume the listing agent in the previous example discovers theinoperative heat pump, but then orgets to note the deect in the inormation provided

to other agents and the buyer is not advised o the deect. The agent in this situation

had actual knowledge o the deect, but due to orgetting to disclose the deect, the

agent is nevertheless guilty o negligent omission because o his/her negligence in

not providing the inormation to other agents and the buyer.

Follow-up

Example: Suppose the listing agent noted the deective heat pump in the MLS

data, but the agent working with the buyer does not notice the inormation aboutthe deective heat pump and the buyer is not advised o the deect. In this case, the

listing agent has done all that is reasonably expected o a listing agent by discovering

the deect and noting it in the MLS data. It is the agent working with the buyer who


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was negligent in not noting the inormation about the heat pump in the MLS data andadvising the buyer o the problem.

NOTE: A negligent omission necessarily involves an unintentional ailure to

disclose. I the agent intentionally ails to disclose, the oense would be a willul

omission. Thus it is not a deense that the agent was acting in good aith.

- The Duty to Discover and Disclose

It is the prohibition against negligent omission o a material act by a real estate

licensee that creates the duty to discover material acts.

Key Point- the real estate agents duty to discover and disclose material acts applies

to all types o real estate transactions, both sales and rentals, not just to residential

sales transactions.

- Negligent Omission vs. Negligent Misrepresentation

Negligent Omission involves a ailure to disclose a material act.

Negligent misrepresentation involves an armative representation that is

not correct.

Both involve unintentional conduct-thus the act that the agent may have

been acting in good aith is irrelevant. The question is whether the agentacted negligently.

1. It should be noted that there are more instances o negligent

misrepresentation than there are o negligent omission because

most acts about a listed property are provided to prospective buyerseither in writing or orally (much o it rom data placed in the multiple

listing service). Thus, a representation is made regarding these

acts and omission is not the issue.


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Keys to Understanding the Duty to Discover and DiscloseThere are certain basic points licensees should keep in mind as they attempt to

understand the subsequent instruction on the concepts o material act and the

agents perormance standard.

Key Point A sae approach to understanding and applying the concepts o

material act is or licensees to envision themselves in the shoes o the party who

does NOT know about a particular act and to ask themselves whether or not they

would want to know about such act. I so, it is probably a material act.

Key Point An agent is NOT required to discover and disclose all material acts.

I a act is a material act and an agent has knowledge o that act, the agent must

disclose the act to all parties. However, i an agent is not aware o the act, he/she

may or may not have a duty to discover such act, depending upon whether or not a

reasonable knowledgeable and prudent agent would have discovered the act in the

course o handling the transaction and acquiring inormation about the property. I the

agent had no knowledge o the act and had no duty to discover such act, then he/she

had no duty to disclose the act, even though it is a material act.

Example: A building listed or sale has serious structural damage but the damage is

such that it would only be detected by a trained or experienced inspector, builder or

engineer rom underneath the building. The structural damage is clearly a material

act that any prospective buyer would want to know. I the listing agent has actual

knowledge o the deect, he must disclose it to the prospective buyer; ailure to do

so would be a willul omission. I the listing agent did NOT know o the eect, the

question is whether he/she reasonably should have known about it. In this case, areasonably prudent agent would clearly NOT have discovered the deect, thus, the

listing agent had no duty to discover and disclose the deect.


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A Material Fact- What Is It?

One o the most dicult concepts or many real estate agents to grasp is that omaterial act. The problem comes in trying to dene the term material act. Any

denition will necessarily be somewhat vague because the concept is intended to

have a broad application and, thereore, it dees specic denition. Just as we cannot

prepare a nite list o acts that constitute negligence, one also cannot produce a nitelist o material acts.

In its broadest sense, a material act may be said to be any act that is important or

relevant to the issue at hand. Such a broad denition is not, however, very helpul to

real estate agents. Thus, the Real Estate Commission has provided some guidelines

regarding what acts the Commission will generally consider to be material in mostreal estate transactions. These guidelines are covered below.

General Guidelines on Material FactsWhen applying G.D 93A-6(a)(1) o the Real Estate License law, the Commission will

generally consider material acts in a real estate transaction to include at least the

ollowing types o categories o acts regardless o whom an agent represents in thetransaction.

Material Facts (basic defnition)

1. Facts about the property itsel

Example: Any signicant physical characteristic, such as lot or building size,

age o improvement, general condition, types o heating systems, water/sewer

service, etc. This includes especially any deects or abnormalities such as a

structural deect or a malunctioning system.

2. Facts that relate directly to the property

NOTE: Typically, these are external actors that may have a direct eect on the

use, desirability or value o the property.

Example: A pending zoning change plans to widen an adjacent street, the

existence o restrictive covenants, or the existence o a hazardous waste acility

on adjacent property.

3. Facts that relate directly to the ability o a principal to complete the transaction

Example: A buyers inability to qualiy or a loan and to close on a home

purchase without rst selling his/her currently owned home; the commencement


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o a oreclosure proceeding (posting o notice o sale) against a seller.

NOTE: The act that a seller is our months behind in making his/her mortgage

payment is NOT a material act until the oreclosure process has ocially been

started by posting a notice o oreclosure sale.

Key Point- No matter whom an agent represents in a transaction, the typeso acts described above must be disclosed to all parties with whom the agent

deals i the agent is aware o such acts or should reasonably be aware o

such acts under the reasonably knowledgeable and prudent agent standard

discussed later in this section.

Facts That Are of Special Importance to a Party

There are also many potential acts which would not normally be a material act, but

because they are o special interest or importance to a party, they become a materialact.

Example: The act that the previous occupants o a house had indoor pets would

not normally be a material act requiring disclosure. However, i a buyer had told his/

her agent that he/she was allergic to pet hair and didnt want a house that had been

occupied by pets, then the act that a house previously had pets is an expressed

material act to that buyer and the agent has a duty to discover and disclose i a housebeing considered was previously occupied by pets.

Example: A seller has a 30,000 square oot commercial property or sale which

cannot be expanded under local zoning laws. The buyer is looking or property in the

25,000 to 30,000 square oot range but has told his buyers agent that he needs aproperty where he can expand to 50,000 square eet or more in the uture. The seller

does not think to advise the buyers agent that the property cannot be expanded and

the buyers agent makes no inquiry about it although he is aware o the buyers special

needs. The buyers agent is guilty o a negligent omission or ailing to discover and

disclose a special circumstance that he knew was important to his client.

Personal Inormation

Much conusion exists regarding the disclosure o personal inormation such as apartys willingness to agree to terms other than those oered or a partys motivation or

engaging in a transaction. Many agents consider such inormation to be condential

and NOT material.

An agent must disclose to his/her principal any personal inormation about another


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party that might aect this/her principals decision. An agent should NOT, however,disclose personal inormation about his/her principal to a third party unless the

inormation relates directly to the ability o his/her principal to complete the transaction.

O course, i the principal consents to the disclosure o personal inormation, then it

may be disclosed.

Special Exceptions

Limitation on Duty to Disclose Death or Serious Illness o Previous Occupant

Under G.S. 39-50 and G.S. 42-14.2, the death or serious illness o a previousoccupant o a property is deemed NOT to be a material act and need not be disclosed

to prospective purchasers or tenants o residential property unless in response to a

direct inquiry. Thus the act that a previous owner (or tenant) o a residential property

died on the property is not a material act and need not be disclosed to a prospective

buyer (or tenant) unless the prospect asks a direct question about this act. I askeddirectly about the death or serious illness o a previous occupant, an agent must,

however, answer truthully.

Limitation on Disclosure o Fact that Previous Owner Had AIDS

Under air housing laws, persons with Acquired Immune Deciency Syndrome (AIDS)

are treated as being legally handicapped and are, thereore, protected against

discrimination in housing transactions. Thus, i a real estate agent is asked whether

a previous occupant had AIDS, the agent should treat the question as being legally

impermissible. The agents response should be that he/she is prohibited by law romanswering the question.


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The Agents Performance Standard

The General Standard

Important Concept- a real estate agent, by virtue o his/her licensure, is expected to

possess special expertise regarding matters associated with the sale o real estate.Thus, a real estate agent will be held to a higher standard o conduct in real estate

matters than would a layman. The general standard or judging an agents conductmay be reerred to as the reasonably knowledgeable and prudent agent standard. In

other words, was the agents perormance in a particular situation comparable to that

o a reasonably knowledgeable and prudent agent in the same or a similar situation?

Agents Perormance Standard Regarding the Discovery and Disclosure o Material

Facts

The special expertise expected o a real estate agent would include the knowledge

and skills necessary to properly perorm a property inspection, to properly gatherall appropriate data about a property in connection with listing the property, and to

identiy material acts that should be disclosed to prospective buyers or tenants.

Key Point-An agent has a duty to discover those material acts which a reasonablyknowledgeable and prudent agent would discover in the same or a similar situation

and to disclose those acts to each party to the transaction.

NOTE: Specic responsibilities o a sellers subagent working with a buyer or a

buyers agent will usually be somewhat dierent rom those o the listing agent withregard to discovering material acts. The agents role in the transaction will also help

determine the specic standards by which an agents conduct will be judged.

Standard or Listing Agent vs. Agent Working with Buyer

Key Point- A listing agent is generally held by the Real Estate Commission to a higherstandard with regard to discovering acts about a listed property than is an agent

working with a buyer.

The reasons or this are:

1. The listing agent is in a much better position to ascertain acts about theproperty; and

2. It is considered to be reasonable or an agent working with a buyer to rely, in

the absence o any red fag on the completeness and accuracy o the property

data provided by the listing agent.

Despite the standard cited above, it is important to note that an agent working witha buyer, especially a buyers agent, may sometimes have a duty to discover which


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exceeds even that o the listing agent. This can arise because o special knowledgeabout the buyers situation that the agent working with the buyer possesses, or, in

the case o a buyers agent, because o the buyers agents duties to the buyer under

the law o agency.

Examples for Discussion

Fact

Should the

listing agent

discover? Should the agent w/buyer discover?

Leaking roo (no visible ceiling or wall

damage)

Cracked heat exchanger in gasurnace

Rotten sill under house

Attic w/ pull-down stairs has noinsulation

Water heater inoperative

Square ootage o 2,250 reportedby seller is actually 2100 (house is

standard two-story)

Square ootage o 1150 reported byseller is actually 1000 (house is a

rectangular ranch)

Highly publicized planned streetwidening in immediate neighborhoodalso appears in citys street plan

Cracks in walls and ceiling

Restrictive covenants prohibit chain-

link ence and buyer wants backyardor dogs

Others?


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The Listing Agent

The Listing Agents are responsible or gathering property data at the time

o listing. A listing agent should, at a minimum, ollow the procedures

listed below when gathering property data at the time o listing.

Procedures for Gathering Property Data

1. Perorm a thorough walk through inspection o the property, noting

any problems or potential problems observed. This inspection

should include the lot as well as the improvements. Use a detailed

inspection check-list.

2. Personally measure all buildings and calculate the square ootage.

An agent may instead rely on square ootage reported by a licensed/

certiable appraiser, architect or engineer i the agent is certain there

has been no obvious error that the agent should notice. Do NOT

rely on a previous agents calculations or square ootage reported in

data rom a previous listing. Also, do NOT rely on tax oce records(which are requently inaccurate) or building plans (which are

requently altered during construction) unless the construction is so

incomplete as to prevent physical measurement.

3. Veriy the acreage or square ootage o the lot by checking the

sellers deed, the applicable plat map or a survey. Note that tax

oce maps and data are oten useul to locate inormation such as

deed and plat reerences, but acreage/square ootage inormation in

a tax oce is requently imprecise or erroneous. Such inormation

should be independently veried.

4. Inquire o the seller specically about each item on your detailed


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inspection checklist and especially about any noted damage, deects or

potential deects, including obvious repairs. Unless a problem is minor or you

are absolutely certain the problem has been corrected, explain to the seller

that you will have to disclose the problem to any prospective buyers unless it

is corrected by the seller. Make sure you address all matters that might aect

the value, use, or desirability o the property, not just physical problems with

the property itsel.

5. Obtain a copy o the sellers deed and, i applicable, restrictive covenants and

any owners association documents (articles o incorporation, bylaws, rules,

etc.). I the seller cannot provide these documents, you should, at a minimum,

advise the buyer to obtain and review the documents prior to making an oer.

Note: The recently revised standard oer to purchase and contract orm contains a

note advising buyers to obtain and review these documents.

Note on Disclaimers as to Accuracy o Property Data

Many agents apparently think they can avoid responsibility or veriying square

ootage or other material acts when listing a property by including on the listing data

sheet a statement such as Buyers Agent to Veriy, Subject to Buyer Verication,

Accuracy o Data Not Warranted, etc. It is important or agents to remember that

a listing agent has an armative duty to discover and disclose material acts, and

this duty may not be avoided by the inclusion o disclaimer statements. The listing

agent may not shit his/her responsibility to a buyer or an agent working with a buyer.


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North Carolinas Residential Property Disclosure Act

The North Carolina Association o Realtors developed and promoted a bill regarding

residential property condition disclosure by seller(s) in the 1995 session o the

General Assembly. This bill, which was endorsed by the North Carolina Real Estate

Commission, was enacted as the Residential Property Disclosure Act with an eective

date o January 1, 1996.

Basic Requirement

Seller(s) o residential one-to-our unit properties must provide prospective purchasers

a Residential Property Disclosure Statement using a orm specied by the law.

It is important to note that the North Carolina law is NOT a true mandatory property

disclosure law! The North Carolina law only requires the seller(s) to provide a

prospective buyer with a Residential Property Disclosure Statement- it does NOT

require the seller(s) to actually disclose any known inormation about the propertys

condition. Rather, the seller(s) has the basic disclosure options listed below:

Sellers Basic Disclosure Options

Disclose any known abnormal condition; or

State that no abnormal conditions are known; or

State that he/she is making no representations about the propertys

condition.

Because the seller(s) have the option to sell the property without making

any representations as to the propertys condition, the North Carolina law

is actually a voluntary disclosure law. However, it is mandatory that the

seller(s) provide the buyer with the disclosure statement.Applicability o Law

Residential 1-4 Unit Properties [G.S. 47E-1]

The law applies to the ollowing transers o residential real property consisting o

one to our dwelling units, whether or not the transaction is accomplished with the


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assistance o a real estate agent:

-Transers by sale or exchange, including transers by

-Installment Land Contract;

-Transers by an Option Contract;

-Note that the law does apply to For Sale By Owners sales (FSBOs).

Statutory Exemptions [G.S. 47E-2]

-Transers involving the rst sale o dwelling never inhabited (the most common

example is a newly constructed dwelling).

Example: What i a newly constructed house is rented or a period o time prior toits rst sale? The statute does not specically address this situation, but the renting

o the house would probably mean that the exemption does not apply. Thus the

seller(s) would probably be required to provide the disclosure statement.

Example: What i an old actory is converted into residential condominiumsand sold? Since the newly created residential condominiums have never been

inhabited, the sale would be exempt and the owner would NOT have to provide the

disclosure statement.

-Transers by Lease with Option to Purchase where the Lessees occupy orintend to occupy the dwelling (mentioned previously).

-Transers to or rom the State or any political subdivision o the State (County

or City).

-Transers rom one or more co-owners solely to one or more other co-owners.

-Transers made solely to a spouse in conjunction with a decree o divorce or

equitable distribution.

-Transers made pursuant to a court order. Examples include court-orderedsale in the administration o an estate or by a trustee in bankruptcy.

-Transers made in connection with a deault on a mortgage or oreclosure.

-Transers by duciary (estate executor, guardian, trustee, etc.).


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-Transers in connection with the owners ailure to pay ederal, state, or localtaxes.

-Transers where the parties agree or the owner to not provide a disclosure

statement.

-Lots or sale- Although not specically listed in the statute as an exemption, thesale o residential lots would not be aected by the statute because only lots or

parcels with a dwelling unit(s) thereon are aected by the statute [see G.S. 47E-

3(4)].

Law Applies to Any Owner of the Property

The requirement to provide a disclosure statement applies to each owner o an

interest in the property being sold under a real estate contract subject to the law [G.G.

47E-3]. Specically exempted rom the denition o owner are trustees under a Deed

o Trust, Mortgage Holders (Mortgagees), Lien Holders, and owners o any easementor license.

A relocation company is an owner and is subject to the disclosure requirement i the

company holds title to the property, even though the company only intends to hold little

temporarily or the purpose o resale.

The Disclosure Statement Form

The law species the exact orm that must be used by seller(s) [G.S. 47E-4].

The content and ormat o the statutorily prescribed orm may not be

altered in any way.

No other disclosure orm may be used to substitute or the

prescribed orm, even i the other orm is more detailed and/orcomprehensive.

An agent may, however, suggest and a seller may use another more

detailed disclosure orm in addition to the prescribed orm.

Delivery of Disclosure Statement and Consequences of Noncompliance by

Seller

Time or Delivery o Disclosure Statement [G.S. 47E-5(a)]

The seller(s) must deliver the disclosure statement to the prospective

buyer no later than the time the prospective buyer makes an oer to


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purchase, exchange or option the property, to exercises an optionpursuant to a lease with an option to purchase.

Delivery to buyers agent. The statute is silent as to whether delivery

o the statement to a buyers agent will be considered to legally

constitute delivery to the buyer.

However, in general business law, delivery o a notice or document

to a principals agent is usually considered to legally constitute

delivery to the principal. Presumably, that general rule would applyin this situation.

Methods for Delivering Disclosure Statement

Listing Firms can routinely send the disclosure statement to the

agent working with the buyer at the time such agent calls the listing

rm to schedule a showing (transmission by ax is ideal).

Owner can leave a stack o signed disclosure statements at theproperty with instructions or prospects to take one copy and to sign

and leave another copy at the property.

Buyers 3-Day Right of Rescission [G.S. 47E-5(b)]

I the disclosure statement is delivered to the buyer after the buyer

makes an oer, the buyer may terminate (rescind) any resulting real

estate contract or withdraw the oer no later than three (3) days aterreceiving the disclosure statement.

Notice o buyers termination (rescission) must be made in writing

within three (3) days. To exercise his/her right o rescission a buyer

must either hand deliver the Notice o Rescission or deposit it in

the United States mail. Note that the statute does not mention

depositing the notice with a delivery service other than the U.S.Postal Service. Thus, i Federal Express, UPS or another delivery

service is used, it is possible a court may require the notice to

have been actually delivered to the seller(s) within three days to be

eective. Buyers right to rescind is waived by closing or occupancy by

buyer. I a buyer is entitled to the three-day right o rescission dueto the sellers late delivery o the disclosure statement, the buyer is

considered to have conclusively waived such right to rescind i he/

she closes

the transaction or occupies the property during the three-day

rescission period.


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Note in withdrawing an offer. Remember that the common lawallows an oeror to withdraw an oer any time prior to acceptance.

Note that the statute reers to

the buyer having the right to withdraw his/her oer within three (3)

days ater receiving a disclosure statement late. It is the belie o the

Real Estate Commission that the legislature (and the draters o the

law) did not intend to restrict an oerors well-established right underthe common law to withdraw an oer at any time beore acceptance.

To adopt a restrictive view o the legislative provision would be

inconsistent with the very purpose o the legislation, which is to

increase a buyers rights ater he/she does not receive a disclosurestatement rom the seller in a timely manner. It is probably best to

simply ignore the language in the statute reerring to withdrawing

an oer and to concentrate instead on the language authorizing a

right to rescind any resulting contract within three days o receiving a

disclosure statement late. It is likely that a uture amendment will beoered to clariy this point.

Potential problem where no statement is provided. It is possible

that the right o rescission may not apply where the seller ails

or reuses to provide a disclosure statement at all. Note that thestatute only provides or a remedy when the disclosure statement

is delivered late. It makes no mention o the consequences when a

seller ails or reuses to deliver the disclosure statement at all. Thus,

when a buyer never receives a disclosure statement rom the seller,

it is possible that a court might nd that the buyer does not have athree-day right o rescission. However, since this result would be

inconsistent with the obvious intent o the law, it is also possible that

a court would award the buyer the right o rescission. This potential

problem results rom what is believed to be simply an oversight in the

drating o the legislation.

Solution? One solution or a buyer who does not receive a disclosure statement,though not very practical, may nevertheless be easible i the buyer wants out o his/

her contract with the seller. The buyer could sue the seller or the disclosure statementto which he/she is entitled under the statute. Upon receiving the statement (pursuantto court order or otherwise), the buyer could then exercise his/her right o rescission

within three (3) days because the statement was delivered late. This statutory deect

probably will be addressed by a uture statutory amendment.

Summary of Sellers Duties

Seller(s) must provide a prospective buyer o his/her residential 1-4unit property with a completed Residential Property Disclosure


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Statement not later than the time the buyer submits an oer topurchase.

Seller(s) must use the specic Residential Property Disclosure

Statement orm prescribed by statute.

Seller(s) must complete and sign orm.

Seller(s) must select and use one o the ollowing orm completionoptions:

1. Disclose any known problem by checking Yes and describing the problem;or

2. Indicating that he/she has no knowledge o any problem by checking NONE

KNOWN; or

3. Indicating that he/she makes no representations about the propertyscondition by checking NO REPRESENTATIONS; or

4. Substitute a report rom an expert.

This ourth option is available where the seller(s) have acquired a writtenreport rom an expert regarding the condition o some portion o the

property. In such situation, the seller(s) may discharge his/her duty to

disclose under the statute by attaching to the disclosure statement a written

report rom a public agency or rom an engineer, land surveyor, geologist,

pest control operator, contractor, home inspector, or other expert dealingwith matters within the scope o the public agencys unction or the expertslicense or expertise.


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NOTE:I the seller(s) choose this option, he/she will not be liable or any error or omission

in the inormation included in the report i the sellers reliance on such report was

reasonable and the seller was not grossly negligent in obtaining or transmitting the

inormation.

I ater having provided to a buyer a disclosure statement indicatinga problem (checking YES and explaining the problem) or

indicating that no problems are known to the seller(s) (checking

NONE KNOWN), the seller discovers a material inaccuracy in the

statement (due to an error or to an event or circumstance), then theseller must promptly correct the inaccuracy by delivering a corrected

disclosure statement to the buyer.

Agents Duties Under the Disclosure Act

The disclosure law specically charges a real estate licensee actingas the agent o the owner (i.e. a listing agent) with the duty to inorm

the owner o the owners rights and obligations under this law [G.S.

47E-8]. To ulll this duty, the listing agent should do the ollowing:

1. Advise the seller(s) whether or not he/she is required by the disclosure law to

provide prospective buyers with a disclosure statement inthe particular transaction in question. I the law applies, the agent then should

also perorm the other acts listed below in order to ulll his/her basic statutory

duty.

2. Advise the seller o the sellers statutory duties (covered in discussion

immediately preceding this section).3. Advise the seller that the buyer has a three-day right to terminate (rescind) a

sales contract when the seller delivers the disclosure statement late but that

the buyer is without recourse i he/she agrees that no disclosure statement is

necessary i he/she closes the transaction without requesting such statement.

IMPORTANT NOTE: Using the Guidelines provided on the back o theResidential Property Disclosure Statement orm provided by the Real Estate

Commission to explain the disclosure requirement is the best way or a listing

agent to ulll his/her basic statutory duties under the disclosure law.

Important Point-i a licensee inorms his/her seller-client o the sellers rights and

obligations as described above, the licensee will be considered by the North CarolinaReal Estate Commission to have ullled his/her statutory duty under G.S 47E-8. On

the other hand, a licensee who ails to ulll this statutory duty may be ound by the

Commission to be guilty o violating Real Estate License Law provisions G.S 93A-6(a)

(8) or (10), which provide or disciplinary action based on:

1. Conduct which represents unworthy or incompetent behavior that endangers the


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interest o the public; and/or

2. Conduct which constitutes improper, raudulent or dishonest dealing.

Additional Duties Under the Real Estate License LawVery Important Topic-It is important to understand that the North Carolina Real

Estate Commission considers each licensee to have a duty to conorm to and supportthe laws o the State, especially those which govern the licensees conduct or which

aect real estate transactions. The Commission, thereore, expects each Licensee to

support the Residential Property Disclosure Act, which establishes as the policy o this

State that specied residential property sellers shall provide a DisclosureStatement to prospective buyers. Such support is considered by the Commission to

naturally fow rom the basic duty imposed on real estate agents by the act, as well as

rom the common law o agency. The ailure o a Licensee to perorm these additional

duties may, in some circumstances, be ound by the Commission to be a violation o

G.S. 93A-6(a) (8) or (10).

Key Point-It is extremely important to remember that the Residential Property

Disclosure Act does not in any way aect a Real Estate agents duty to discover and

disclose material acts under the Real Estate License Law or the common law. This is

true regardless o the agents role in transaction (i.e. as listing agent, sellers subagentworking with a buyer, buyers agent, or dual agent).

One positive eect o the new disclosure law would be ewer situations

where buyers are unhappy with Real Estate agents because o property

deects or other material acts that were not discovered and disclosed

by the agents. However, the legal obligation o a Real Estate agent todiscover and disclose material acts is unchanged. Thus, an agent should

not be less diligent than beore and should not assume that a sellers

disclosure o adverse property conditions will automatically protect the

agent.

Listing Agents Additional Duties

A listing agent should:

1. Provide the seller(s) with a copy o the Residential Property Disclosure

Statement orm required by the disclosure law and provided by the Real Estate

Commission.2. Key Point-Explain to the seller(s) that a Real Estate Licensee is required by the

Real Estate License Law [G.S. 93-A-6(a) (1)] to disclose to each prospective

buyer any material act regarding a listed property about which the agent is

aware or should reasonably be aware, even i the seller chooses not to disclose

such material act or to make no representation concerning the act.


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NOTE: Providing this explanation at the outset o the discussion with the seller about

property condition disclosure would seem to be the best policy.

3. Assist the seller in assessing the property and completing the orm. This could

include (but not necessarily be limited to) the ollowing:

a. Gathering property data. This is mandatory under the License Law

duty to discover and disclose material acts. A thorough walk-through

inspection o the property with the owner is highly recommended.

b. Identiying items o possible concern and reviewing with the seller his/her

options or addressing such items.

NOTE: The listing agent and seller should reach a clear understanding as to which

deects or conditions the listing agent considers to be a material act that the agentmust disclose to prospective buyers.

c. Advising the seller, i necessary, on the proper completion o the orm.

NOTE: A listing agent is NOT expected to suggest to a seller which disclosure optionto choose with regard to any item or category; however, an agent may provide such

advice to a seller i he/she desires to do so.

4. Assist in delivering the completed disclosure orm to prospective buyers and

their agents. Probably the most eective way o dong this is to routinely axa copy to the selling agent at the time the selling agent calls to schedule a

showing.

5. Monitor the property and circumstances surrounding its sale to help the seller

insure the continuing accuracy o the disclosure statement and help the sellerprepare a corrected statement i necessary.

6. Procure the buyers signature on the disclosure statement. Keep a copy and

provide the original to the seller or listing agent. I possible, note the date and

time the disclosure statement was delivered to the buyer.

Duties of Sellers Subagent Working with Buyer

A sellers subagent working with a buyer should:

1. Obtain a disclosure orm completed by the seller and assist in delivering the

orm to prospective buyers. Probably the most eective way o obtaining a


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completed disclosure statement is to have the listing agent/rm ax you a copywhen you call to schedule a showing.

2. Procure the buyers signature on the disclosure statement. Keep a copy and

provide the original to the seller or listing agent. I possible, note the date and

time the disclosure statement was delivered to the buyer.

Duties of Buyers Agent

Even a buyers agent has some duties connected with the new requirement or sellers

to provide disclosure statement or the buyer/client.

1. Obtain and deliver completed disclosure statements to his/her buyer/client.

2. Acquire the buyers signature on the disclosure statement (acknowledging

receipt by the buyer), provide the buyer a copy and return the copy with the

buyers original signature to the listing agent. The law does not require thebuyers signature but it obviously contemplates such (see orm).

NOTE: The agent working with a buyer will undoubtly be motivated to perorm the

tasks noted above because he/she will ear rejection by the seller o the buyers oer

where a disclosure statement signed by the buyer is not attached to the buyers oer.

3. Assist the buyer in assessing the disclosure statement and the property,

identiying items o concern and determining i expert inspections are needed.

-Query #1 for Discussion- Is it appropriate or a listing agent to counsel a sellerNOT to provide the disclosure statement?

-Query #2 for Discussion- Is it appropriate or a listing agent to counsel a

seller that checking NO REPRESENTATIONS on the disclosure statement will

probably expose the seller to less potential liability than would be the case i theseller either checks YES and attempts to disclose adverse conditions or checks

NONE KNOWN?

Query #3 for Discussion-Is it appropriate or a listing agent or rm to ollow

a policy o advising all seller-clients to check NO REPRESENTATIONS or all

items on the disclosure orm?

Query #4 for Discussion-What about an agent or rm ollowing a policy o

advising all seller-clients to avoid checking NO REPRESENTATIONS?

Completing the Disclosure Statement Form

(Reer to the disclosure orm included in this section)

It is perectly appropriate to choose dierent disclosure options or dierent items and

item categories.


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Example: An owner may check YES or item category #1 (and disclose that the

propertys septic tank is backing up) and at the same time check NONE KNOWN orall the other item categories (assuming that is true).

For a multi-item category on the orm (such as item category #2) an owner may check

Yes or one item and also explain that he/she is choosing the NONE KNOWN or

NO REPRESENTATIONS option or the other items in the category.

Example: An owner who is aware o a leak in the roo but is not aware o any other

structural deects should check YES and then provide an explanation such as, Leak

in roo around chimney fashing in east side o chimney; otherwise, none known. I

there is any deect or problem with an item in a multi-item category, then explain theproblem and comment on the other items as illustrated in the above example rather

than to check more than one box or the same category.

When substituting a written report rom an expert as authorized by the disclosure act,

the seller should attach the written report to the disclosure statement. The box(es)checked on the statement and the reerence to the attached report should clearly

indicate what, i any, representations are being made.

The main point to remember is that the report should be as accurate as possible and

clear to someone else reading the report.

-Query for Discussion

What should a listing agent do i the seller reuses to complete the

disclosure orm?

-Query for Discussion

I the agent working with a buyer delivers to a listing agent an oer

rom the buyer, but does not deliver a copy o the sellers disclosure

statement signed by the buyer, can the listing agent hold the oer

until he/she receives proo that the disclosure statement was

delivered to the buyer?

d. listing contracts & property disclosure

Documents