Friday, February 14, 2014

Real Estate Agents: Just Disclose It

Back when I introduced this blog, I noted that my partner and I primarily represent homeowners who have purchased defective property in their cases against those involved in that purchase. My blog posts have almost exclusively focused on cases against sellers. Many of you might ask "what about cases against real estate agents?"

I believe that I have represented more real estate agents than I have sued. Sellers are usually the only defendants in the cases that we pursue on behalf of defrauded homeowners. Our client's contract is with the seller, not with the seller's real estate agent. Also, as real estate agents remind me when I question them about their involvement, the disclosure form for defects in residential real estate transactions is the Seller's Real Estate Condition Report. It is the seller who completes and signs the Real Estate Condition Report. Obviously, the seller who has lived in the home for twenty-plus years is in a better position to know if the basement leaks than a real estate agent who has visited the home once.

About the only way that a seller's real estate agent (listing agent) can get him or herself in trouble with the buyer is by falsely advertising the property or by not disclosing defects. We occasionally pursue cases against listing agents for making false statements in their advertising flyers, such as falsely representing that a property is zoned commercial. Since those cases are very rare, a listing agent should be primarily concerned with making sure that all defects are disclosed in writing to all buyers. Sellers completing Real Estate Condition Reports are often full of excuses for not wanting to disclose their basement problems:
  • "It only happened once - in June 2008 when I-94 flooded"
  • "It hasn't happened in years"
  • "My Uncle Louie fixed the problem"
 A competent and honest real estate professional will ask him or herself "is this something that a buyer would want to know?" Listing agents should also recognize that sellers (gasp!) often minimize their basement problems. June of 2008 might actually mean "every June since 2008." It hasn't happened in years might actually mean "2012." Uncle Louie might be kookier than Uncle Buck. Listing agents must recognize that Wis. Stat. s. 709.02 is intended to protect them and that they must advise sellers to disclose, disclose, DISCLOSE! If a seller tells his or her listing agent about a defect but refuses to disclose it in a Real Estate Condition Report, the listing agent had better make sure that the defect is disclosed to all buyers in writing. Otherwise, the listing agent faces liability under Wis. Stat. s. 452.133(1)(c) or Wis. Admin. Code s. REEB 24.07(2).

Sellers who are questioned about why they did not disclose certain defects in their Real Estate Condition Report often try to throw their listing agent under the bus. Sellers may testify that they told their listing agent about their shifting foundation wall and that their listing agent advised them to omit that defect from their condition report and paint over that wall. That actually happened on the morning of my first bench trial, so I called the listing agent to testify that afternoon. He clearly and unambiguously testified that he was never told about any basement defects and that he would have advised the sellers to disclose any basement defects in their condition report had they simply told him about those defects. I usually find such explanations convincing, and so do judges and juries. In order to sue a real estate agent, I have to be convinced that the agent knew about the defects. Why would a real estate agent risk being held liable for repair costs and diminished value and jeopardize his or her license for a 6% commission? That does not make sense!