Disclosure Duties Of Real Estate Brokers

Most people with some experience in real estate transactions are aware of a seller’s duties generally to disclose to the buyer adverse material facts about the property being sold.  But what duties do brokers have in this regard?  Washington law imposes on brokers certain non-waivable duties owed “to all parties to whom the broker renders real estate brokerage services.”  By statute, such duties expressly include, without limitation: (1) to exercise reasonable skill and care; (2) to deal honestly and in good faith; (3) to present all written offers, written notices and other written communications to and from either party in a timely manner; and (4) to disclose the party(ies) whom the broker represents, before the represented party signs an offer.  The law also requires brokers to “dislose all existing material facts known by the broker and not apparent or readily ascertainable to a party,” although this does not require brokers to “investigate matters that the broker has not agreed to investigate.”  In one recent case, a broker who represented both buyer and seller had previously managed the seller’s home as a rental property.  During that period, tenants at the property were arrested for growing marijuana and manufacturing methamphetamine.  The broker’s management company evicted those tenants, and the owners soon decided to sell.  The broker did not disclose to the buyers that the property had been used as a meth lab, although the broker knew the sellers did not disclose that the property had been used for illegal drug manufacturing.  The appeals court upheld the trial court’s conclusion that the broker was liable to the buyers for failing to disclose this known material fact.  The broker contended that he only knew that that meth manufacturing equipment was found on the property, but that he supposedly did not know that actual meth manufacturing had taken place, based upon an alleged conversation with law enforcement.  But the trial court found that circumstantial evidence render such denial by the broker not credible.  A broker’s failure to make required disclosures about known material defects can subject the broker to liability under the Unfair Business Practices Act, sometimes referred to as the Consumer Protection Act, which can also put the broker on the hook for attorneys’ fees.  Brokers who violate their disclosure duties can also face discipline, including suspension of their license.

Brokers wishing to minimize their exposure to liability and disciplinary action should err on the side of disclosing material defects.  At the same time, broker should be wary about agreeing to take on duties to look into matters on behalf of parties to a real estate transaction.  If you agree to perform due diligence or investigations, you may be charged with disclosing not only what you actually know, but what a reasonable investigation might have revealed.  It is prudent to clearly and conspicuously delineate in writing the scope of services to be provided to a buyer or seller, and to advise in writing which aspects of due diligence the client is responsible for themselves. 

The lawyers at Beresford Booth have a wealth of experience counseling clients in real estate matters, both while a transaction is pending and after potential disputes arise.  We would be happy to assist you in minimizing your risk or resolving your dispute.

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