All real estate licensees have a general duty to disclose material facts known by the agent and not apparent or readily ascertainable to a party. This duty applies to both the listing agent and the selling agent. The duty is not the same as the affirmative duty of disclosure because it applies to all parties, not just to the client. Because it applies to all parties, the duty is limited in scope of the disclosure of known material facts not apparent or readily ascertainable by others.
The duty to disclose material facts comes into play on the listing side mostly in disclosure of material defects in the property. The duty to disclose material defects in property has long been an issue in the industry. Although it unfortunately happens, it is very rare that an agent will deliberately try to hide a material defect they know about. Most lawsuits against agents for failure to disclose material defects are based not on the claim that the agent failed to disclose known defects but that the agent was negligent in not knowing of the defect.
The classic failure to discover defects case is Easton v. Strassburger, a 1984 California case. In Easton, a California court found the listing agent had a duty to disclose facts materially affecting the value or desirability of the property which through reasonable diligence should have been known. According to the court, there was substantial evidence to support the finding that the listing agent was negligent because a number of red flags indicated problems with the property. The court held the problems, which involved earth movement, were within the knowledge a typical real estate licensee familiar with property in the area.
The Easton duty to discover material defects does not require listing agents to inspect the property they list. Rather, the standard is really one of diligence. The listing agent must use the care of an ordinary real estate licensee when looking at or showing the property they list. The agent cannot ignore red flags that would be obvious to the average real estate licensee. Click here for a copy of the Easton case.
On the selling side, disclosure of material defects rarely comes up because buyers are rarely as defective as houses. In fact, about the only way a buyer can be defective is to not have the financial wherewithal to perform as agreed. This comes up in two important places in a real estate transaction: redemption of earnest money and credit worthiness. A buyer’s agent must disclose to the other side any knowledge that their client does not intend to, or cannot, redeem earnest money due under the contract. A buyer’s agent also cannot hide from the seller the buyer’s financial inability to perform the contract.
The statutory duties a real estate licensee owes to their own client mirrors common law fiduciary duties. The common law duties of loyalty, obedience, disclosure, confidentiality, diligence, and accounting are included among the statutory duties owed a client. There is no practical difference as far as a licensee’s obligations are concerned between those duties and their common law counterparts. Click here for a detailed explanation of common law fiduciary duties. These affirmative statutory duties to clients may not be waived by the agent or the client. There are, however, several statutory duties which have no common law counterpart.
Under Oregon statutory law, agents have a duty to advise their client to seek expert advice on matters related to the transaction that are beyond the agent’s expertise. This affirmative duty is the flip side of a provision of Oregon agency law that says agents have no duty to investigate matters that are outside the scope of the real estate licensee’s expertise unless the licensee or the licensee’s agent agrees in writing to investigate a matter. Taken together, these two duties mean that, while an agent need not themselves investigate matters that are beyond the expertise of a real estate licensee, they may have a duty to advise the client to have another professional look into the matter. So, for instance, an agent would not have to investigate an encroachment onto a property but might, depending on the circumstances, have a duty to tell their client they need to consult with an attorney about the encroachment.
Another place where statutory duties do not exactly mirror common law agency duties is in marketing property under contract or finding additional properties for a buyer under contract. Unless agreed otherwise in writing, an agent must make a continuous, good faith effort to find a buyer for their seller or property for their buyer. Agents are not required, however, to seek additional offers to purchase or find additional properties once their client has entered into a contract for sale. The agent and principal may agree to seek additional offers or property but they are not required to do so as a matter of agency duty.
Oregon statutory agency duties clarify the common law by expressly allowing the seller’s agent to show properties owned by another seller to a prospective buyer. Similarly, a listing agent can list competing properties for sale without breaching any affirmative duty to the seller. The same rules apply to buyer agents who can show properties one buyer client is interested in to another buyer client.
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