A material fact is a known fact about a subject property that can affect the prospective buyer’s decision to purchase the property. Material facts refer to facts that are required to be disclosed to the buyer of a real estate purchase, including the condition of a property or inspections that have been performed. A listing agent must disclose material facts to buyers so that potential buyers are equipped with the sufficient knowledge required to make solid decisions.
Material facts in real estate refer to the structural components of the property and its condition. This includes property defects, square footage of the property, issues with major housing systems, including heating, cooling, plumbing, potential hazards such as mold, and mildew which may alter the value of the property to the buyer. Although certain aspects of the property may appear obvious to the buyer, it is necessary to disclose this information regardless. Other known material facts that are required to be disclosed include murder on the property as reported within the last three years.
Duties of an Agent to Disclose a Material Fact
The California Supreme Court has strengthened the requirement of the agent’s duty to disclose material facts to the principal. The duty to disclose information includes the need to counsel clients, including offering advice and making recommendations when necessary. Failure of the broker to inform principals of vital information cannot only lead to the forfeiture of profits, but it can also result in the revocation of the broker’s license.
Courts have further concluded that agents are not permitted to enjoy the fruits of an advantage gained from not properly disclosing information. The law requires all efforts, advice, and actions to be in the best good faith manner for the benefit of the principal. The law indicates that the agent is barred from profiting at the expense of the principal.
The Importance of the Easton v. Strassburger Case
The case of Easton v. Strassburger, (1984) 152 Cal.App.3d 9099) increased the duty of the agent to disclose material facts about the subject property to the prospective buyer. The court determined that a real estate agent, one that is presumed to be the professional, is relied upon by other buyers and in turn rely upon the information provided by their agent to make decisions. Subsequently, the court further reasoned that because principals have a reasonable expectation to rely on fair and accurate information provided by the agent, the agent must perform a competent inspection of the property to determine if there are any facts which may warrant an investigation.
In this case, the agent noticed an uneven floor but never relayed this information to the buyer. After purchasing the property, the buyer suffered massive losses as the property was defected. The court determined that if the agent had informed the buyer of the condition of the property or moved forward with a simple inspection of the property, the buyer likely would not have made the wrong decision to purchase the property.
Additionally, this case established that any information which may affect the value or desirability of the property must be disclosed. This refers to defects, including hazardous material, systems of the property malfunctioning (heating, cooling, and plumbing), easements, and others. While these defects have been covered in other court cases, this case further established the important of disclosing material facts. Also, the agent must disclose additions, renovations, and other changes to the property which were made without a permit.
What the Easton v. Strassburger Case Teaches Us About Material Facts
If a subagent is involved in a real estate transaction, he or she owes the same duty to the principal as is required by the original agent. Additionally, the subagent owes the agent those duties as well. Because principals generally only hire one agent, the principal’s expectation is that the agent will manage the transaction effectively. This includes taking responsibility to prevent subagents from acting to the detriment of the principal. Failure on the part of the agent to oversee the subagent may result in the agent being held liable for acts of the subagent.
Duties of Agents to Third Parties
Agents owe the duty to third parties to provide relevant material facts regarding the subject property. It is unlawful for an agent to prevent or alter an inspection or incentivize a certain action. Furthermore, if the principal is aware of a portion of the property that is damaged and informs the agent, the agent must disclose this information to the prospective buyer and their agent. If the principal asks the agent to conceal certain information, the agent must inform the principal that concealment of such information is unlawful.
Constructive fraud
Constructive fraud is when a defendant falsely misrepresents a material fact for the purpose of making the other party rely on such information to make a poor decision that results in damages.
A contract that is riddled in fraud can be voided by the victim. Legal action can result in monetary damages and/or jail time for the defendant.
If a real estate agent is guilty of fraud he or she can have his or her license suspended, be fined, or potentially be arraigned on fraud charges.
