Remember from my last article that the law provides that a seller of Residential Property must disclose unknown defects to a purchaser. The facts were that Robert lives on a parcel that has a small bait and tackle shop and his residence, located on the River. Robert has lived and worked on the property for many years. You are his Realtor, and has been your friend for many years. He has grown tired of resurrecting the property annually because of the river floods, damaging both buildings and the land. He does such a good job repairing the damage that one unfamiliar with the property would never know that the buildings were constructed lower than the Code required, or that they had ever flooded. Robert is frustrated and wants to sell.
You find a buyer for your friends’ property. The buyer is a retired lawyer who knows everything about everything, but nothing of the property’s history. Robert tells you that no one told him about the annual flooding when he bought the property, that he is tired of being the fall guy, and that it’s only fair for him to recover the cost of his repairs. He feels entirely justified in saying nothing to the buyer of his annual heartache and effort.
Assuming you know of the periodic flooding, and you agree to serve as a transaction broker, what must you disclose, if anything, and why?
As a transaction broker, you are required by Section 475.278(2) (a) (d), Florida Statutes to “deal honestly and fairly” and to “disclose all known facts that materially affect the value of residential real property and are not readily observable to the buyer.” As to the residential portion of the property, in addition to the statute, the duties of Johnson v. Davis that sets requirements for the seller, also extend to a real estate broker, by the case of Revitz v. Terrell. (Your lawyer has the cite for these cases.)
One of the buildings on the property is where Robert lives. The annual flooding affects the property’s value. The facts suggest that the annual flooding may not be readily observable to a buyer because of Robert’s annual resurrection of the buildings and property. The broker is a friend of Robert and the question says that he knows of the flooding and the repairs. The Broker is therefore required by both statute and by case law to disclose that the residential part of the property floods regularly and has required annual rebuilding.
But what about commercial property? Robert’s annual facelift might easily be interpreted as an effort to hide the defects in this property depending on the role he takes, the broker can be liable for negligence and fraudulent misrepresentation. In addition the broker can be liable for fraud if he assists to intentionally deceive the buyer. Even if the broker only knew about Robert’s deception and benefitted from the closing (but did nothing to conceal the information), the broker could be sued for conspiracy to commit fraud.
I don’t mean this article to be preachy, but frankly, I’ve been here long enough to be entitled. You are a professional in the community, and unless you plan to leave soon, this deal will hurt your reputation for a very long time. A lawsuit will also likely cost more than any commission you would receive, even if you win, and you probably won’t. Deception is not worth the risk.
These are unusual facts that you’ll probably never see except in my question. But the facts could involve knowledge of termites, bad plumbing or roofing, or any other deficiency. The answer is the same.
The question for the next article is, suppose instead of being Roberts Realtor you are his lawyer. Robert asks you write the contract and close the deal, but say nothing. Does attorney-client confidentiality protect the lawyer, even if Robert and his broker both must disclose?
So far you know from these articles that both the seller and his broker are required to disclose, for many different reasons, anything not known to the purchaser that materially affects the value of residential property. The same rule applies to Commercial Property. If the seller and the broker hide something they know.