August 28, 2019
On the very first day of our most recent Cherry Hill real estate school class, a young man who is so excited about getting his real estate license asked, “Is it true about the three most important rules in real estate?
You’ve heard it a hundred times. Everybody’s heard it. “The three most important rules in real estate are, “location, location and location.”
While location is very important to certain commercial clients, residential buyers routinely ignore homes that have a good location and choose instead properties that have a great back yard, or a wonderful finished basement, or a “to die for” kitchen or master bedroom suite.
So what’s more important than location?
We tell people who come to Garden State Real Estate Academy to earn a New Jersey real estate license, “The three most important rules for real estate professionals are disclose, disclose, disclose.” The number one reason real estate agents across the country get sued is for failing to disclose a significant fact in the real estate transaction.
When REALTORS® list a property for sale, it is their duty to disclose to those on the buying side any material defects in the home. Real estate agents are not expected to creep on their hands and knees though the crawl space looking for termite damage. We are not home inspectors! But as the listing agent goes through the property with their seller, they should ask about things that a prudent person would notice, such as water stains on the ceiling, or a musty smell in the basement.
In New Jersey, real estate agents ask home sellers to complete a Seller’s Property Disclosure at the time of listing a residential property. The seller and the listing agent sign it and is then attach it to the agreement of sale to be signed by the buyer and the buyer’s agent. But unlike many states, it is not state law that sellers do so here. Many brokers have a policy of not accepting listings if the seller refuses to provide a seller disclosure.
What should be disclosed?
The easy answer is “anything that a reasonable person would want to know if they were on the other side of the transaction.” While not an all-inclusive list, this would include:
- Material defects in the property
- The presence of any lead-based paint of the home was built before 1978
- A financial interest in the property by the real estate licensee or a member of their immediate family
- Any environmental hazards, such as a buried oil tank or any known dumping of chemicals, paint, etc. into the soil
- Issues that might prevent the title from being transferred (such as a lien that the seller cannot afford to pay)
- Any knowledge by the buyer’s or seller’s agent that the buyer has falsified his loan application or has encountered circumstances that might prevent him from getting the loan (such as a job loss).
- If the seller has had work done on the property and has not obtained any required permits
- Appliances, electrical, water, or waste disposal systems included in the property sale that have known defects
- Known encroachments on the property, such as a neighbor’s driveway that crosses over part of the seller’s land.
What does NOT need to be disclosed?
A real estate agent has a fiduciary duty to her client—buyer or seller. Part of that obligation is the duty of confidentiality. A licensee may not under any circumstances reveal to other anything about their client that is confidential. I have been stunned in my career at how agents, when asked, “Why are they selling?” go into bouts of verbal diarrhea and say things like, “They’re getting divorced, and it’s really ugly.”
Almost as many buyer’s agent will submit an offer and will tell the listing agent, “They absolutely fell in love with this home. They’ve been looking for six weeks and finally found their dream home.” Volunteering such confidential information could clearly hurt the buyer’s interests in the subsequent price negotiations.
Such things should never be disclosed to an agent representing the other side of a transaction! The duty of confidentiality extends far beyond the settlement date or the date a listing or buyer agreement expires; it lasts forever.
You are also prohibited from disclosing to a buyer the presence of convicted sex offenders who are on parole and living in the neighborhood. If a client or customer asks you about this, the only legal response is to state that your company does not keep those records, and to refer them to either the county prosecutor or the state police website.
New Jersey has no requirement for real estate agents to disclose that a murder, suicide, rape, or death occurred in the property, or that the house is haunted.
If in Doubt . . .
The best resource for any real estate agent is their broker. Don’t assume you know best. Talk to your broker—his or her license is on the line, too, if you get sued! Or run the scenario past an attorney with whom you have friendly, professional relationship. If the client insists on you not disclosing a material defect, tell them to find another agent.
When it comes to all questions about whether or not you should, the best rule is, “If in doubt, disclose!”
David C. Forward is a licensed real estate broker and instructor and was first licensed as a Realtor® 31 years ago. During his career, David and his business partner sold more than 450 homes in South Jersey. He is now School Director of Garden Real Estate Academy, has won numerous awards for real estate sales, is a much-requested public speaker who has addressed audiences on six continents and is the author of 14 books. David can be reached at David@GSREacademy.com