Huntersville|Charlotte|Lake Norman - A seller’s duty to disclose latent material defects

Thinking of Selling Your Home?   We have the experience and resources to help you get it done ethically!

QUESTION: In reading last week’s Q&A (Disclosure, Material Facts, the Residential Property Disclosure Statement, and the Due Diligence Fee, release date: 6/4/2020), I was surprised to learn that a seller has a legal duty to disclose a material defect about their property when the seller knows about the defect and the defect is one that is not discoverable by the buyer in the exercise of reasonable diligence. I have long understood that a seller can’t hide or actively misrepresent a material fact about their property, but I didn’t know that a seller has a duty to disclose latent material defects. Can you give me a real-life example of when a seller got into trouble for not disclosing a material defect?

ANSWER: Yes. The case of Everts v. Parkinson was decided by the North Carolina Court of Appeals in 2001. It involved the sale of a house in Wilmington in 1993 that was clad with synthetic stucco. Approximately two years after moving into the house in 1988, one of the owners, Mr. Parkinson, began to discover rotting pieces of brick molding around at least seven windows or doors. He replaced the rotting brick molding himself. Later, a painter who power-washed the house discovered that one of the windows was rotted in the sash, jamb, and part of the sill. Again, Mr. Parkinson made the repairs himself. He testified that the work “didn’t appear that complicated,” but an engineer who inspected the house testified that the window had undergone extensive repair behind the surface cladding between the inner and outer walls.

Mr. Parkinson later hired a company to build a band of stucco around the perimeter of each window to protect the windows from water. The president of the company testified that he told Mr. Parkinson the bands would not provide any waterproofing and that all the company was providing was decorative banding.

At the time of sale, the Parkinsons did not inform the buyers, Mr. and Mrs. Everts, about any of the repair work that Mr. Parkinson had done or about the construction of the stucco bands. The Everts’ home inspector testified that he did not observe any problems with the windows or doors and that he was not able to observe the perimeter joints of the exterior windows because they were concealed by the stucco bands. He also testified that he had not been informed of any moisture intrusion problems, and that if he had, he would have performed an intrusive test by inserting a moisture probe into the synthetic stucco. According to the inspector, it was not the normal practice of his company to perform this kind of test unless it was provided with information about water intrusion problems.

In its opinion, the Court of Appeals stated that “[a] duty to disclose material facts arises where material facts are accessible to the [seller] only, and he knows them not to be within the reach of the diligent attention, observation and judgment of the purchaser.” The Court concluded that a jury could infer from the evidence that material defects were known to Mr. Parkinson, that he knew the Everts’ were not aware of the defects and would not discover them in the exercise of diligent attention or observation, that Mr. Parkinson therefore had a duty to disclose the existence of the defects to the Everts’, and that his failure to do so supported their claim of fraud.

© Copyright 2020 - 2024. North Carolina Association of REALTORS®, Inc.

This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

Lake Norman : Agents Take of Not offering Compensation in MLS

 

On this week's episode of Real Estate Insiders Unfiltered, California agent Chris Cragnotti shares his experience working with sellers who chose not to include an offer of compensation in the MLS, 10 months before it was required. He describes the conversations he's had with clients, the responses of buyer agents and how the deals went down.  

See why eliminating upfront offers of comp is 'nothing to be afraid of': Many agents are just starting to talk with clients about industry rule changes, but Cragnotti has been doing it since November. After the Sitzer/Burnett verdict was announced, "we knew what the DOJ wanted," he said. 

So how did sellers react? His first conversation was "super easy." Transparency and education have been key.

"I realized that I had a fiduciary obligation to explain to my sellers that this pathway existed, that not only do they not have to offer compensation, but the buyer can can now ask them in the purchase agreement. And I explained to every one of my sellers, you're very likely going to be asked to pay compensation, and I think it's a great insurance policy. They should have their own representative. It protects you, it protects me. It's better and it's worth your money to do it. You can still say no. You'll be able to negotiate it."

Were buyers (or their agents) scared away? Removing an offer of compensation has not impacted Cragnotti's business or his sellers. All of his recent listings have sold — many for above asking — and the change, he said, has ultimately been "a big nothing."

"What I think all the other agents gleaned from the experience was that, oh, it's just an extra a piece of paper we have to do. It's a conversation I have to have with my buyers now, a conversation we probably should have been having all along anyway. But at the end of the day, you know, it's just really easy and it will become easier."

Huntersville|Lake Norman|Charlotte - Your Listing Agents Directive

In real estate, a fiduciary is an agent who has a legal obligation to act in the best interests of their clients, rather than their own. This is known as a fiduciary duty. The National Association of REALTORS® created an acronym to help real estate agents remember the key points of fiduciary duty, which is "OLD CAR": obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care and diligence.

Starting August 17th, buyers will meet with an agent and sign a buyer representation agreement before seeing a property on the MLS, laying out the terms of that engagement including the compensation the agent will be paid for those services. We all know that buyer agent compensation will vary from agent to agent, market to market, company to company, etc. With that in mind, as a listing agent, acting as fiduciary to your seller, why would you in advance of an offer from the buyer, advertise what your seller is willing to pay in buyer agent compensation or concessions, knowing that every buyer's financial situation is different, and what they agreed to pay their buyer's agent might be different as well? You're literally telling a buyer what your seller is willing to give up to make a deal come together in advance of an offer. This "might" make some sense in a buyer's market, but certainly not a "normal" or "seller's market". I bring this up because I've had two lawyers now tell me, breach of fiduciary duty claims could rise against listing agents, if they continue to advertise specific amounts for offers of compensation or concessions in advance of an offer, "potentially" resulting in the seller leaving money on the table.

The best approach going forward for everyone is simply this: "Seller is willing to entertain any and all requests, put it in your offer". Let the offer dictate your response and strategy for putting a deal together with the buyer. If a buyer's agent calls you and asks if your seller is offering compensation or concessions, simply state: "Our seller is willing to entertain any and all requests from your buyer, please just put them in your offer". What if the offer includes amounts significantly less than what your seller was willing to offer in compensation or concessions in advance? Let the buyer request what they want or need to put a deal together. It's a negotiation... LET THEM MAKE THE FIRST MOVE!

Contact me and I will explain this new confusing process.   

Your Huntersville Realtor and Advisor

 

What is the Realtor® Difference? Going under contract sooner than expected. But before the contract is signed it’s…

📌Receive and review all Offer to Purchase contracts submitted by buyers or buyers’ agents

📌Evaluate offers and counsel seller on offers

📌Contact buyers’ agents to review buyer’s qualifications and discuss offer

📌Send Seller’s Disclosure to buyer’s agent or buyer upon request

📌Confirm buyer is pre-qualified

📌Negotiate all offers on seller’s behalf, setting time limit for loan approval and closing date

📌Prepare and convey any counteroffers, acceptance or amendments to buyer’s agent

📌Send copies of contract and all addendums to closing attorney or title company And so much more. That’s the Realtor® Difference.

Contact me to learn more about the new Realtor Compensation Rules.   704-fourfiveone-7051

3 Things to Consider if You Are Considering Selling Your Home.

1. New MLS commission rules are taking effect over the next 11 days. This means what was a 5-6% listing last week is now a 2-2.5% listing today. MLS's no longer will publish seller paid buyers commission, so there is absolutely no reason to agree to it at the listing table, if your agent is worried about securing buyers agent commission at the listing you need to find another agent.

You, as the seller, have the option to negotiate any buyers agent commission as part of the purchase contract. No need to give away 2.5% now, think about it and find an agent that understands building value and making your home desirable (not the commission).

How can this work out?
Buyer comes with no agent to pay.
Buyer pays his own agent.
Buyer increases price to pay agent.
Buyer asks you to pay agent.
One of theses options was where sellers were yesterday, the other three are seller positive.

1. There are still transactions closed in July around Charlotte and Lake Norman that had multiple offers. The buyers agent commission will certainly play a part in these negotiations going forward.

The bottom line is that now sellers have a different bottom line.

2. Interest rates have decreased, this is increase traffic and sales (not a ton but a measurable amount), prices will continue to increase.

3. Great homes are still selling days and bringing a premium. 3650 homes were listed in Mecklenburg County, North Carolina since July 1, 2024.  2208 homes sold with an average days on the market being 32 days.

Having attended multiple MLS meetings regarding regarding the de-coupling of commissions I can tell you everyone has a different opinion on what is now a mandate. I have yet to meet a group of Managers that agree, brokers that agree or agents that agree on what to do and the reality is there are not a lot of options. The best option for seller is agree to listing commission 2-3% AND be open to buyer agent commissions or buyer concessions if they are included in an acceptable offer.

Any agent that is more concerned with offering commission than properly marketing your home is a "hard no".

NAR Ruling FAQ From NC Association of Realtors

 Carolina Living and Roby Robertson does their best to keep their clients informed about the recent Litigation with regard to the National Association of Realtors.  Below are important points to consider.  If you are thinking of buying or selling, let us know what questions you have (no obligation).  

1. Listing Commissions: Cooperating compensation is still permitted, and as has been shown many times, it offers benefits to both buyers and sellers. It would be good to examine policies to make sure that sellers are being fully informed about how their commissions are used, including how much is being paid to cooperating agents. Sellers should be made aware that they are under no obligation to pay cooperating agent commissions, including cooperating compensation to seller subagents. 

2. Buyer Agent Commissions: a. Disclosure. Examine policies to make sure buyers are aware that sellers may not offer cooperating compensation, and that buyers may need to pay their agents from their own funds. b. Avoid Steering. Buyer agents should put their fiduciary duty to the buyer first and avoid steering their buyers only toward properties that offer cooperating compensation that will cover the buyer’s monetary obligation to their agent. c. A la Carte Compensation. Buyer agents may want to consider alternate forms of compensation, such as a flat fee or an hourly rate, if no cooperating compensation is offered. This may mean that buyer agents may want to consider altering the services they offer to reflect the amount of compensation due. d. VA Loans. Buyers using VA loans are still not permitted to pay buyer agent commissions from their own funds. Assisting these buyers is still important, but it may take time for the VA to adjust its policies, if it chooses to do so at all. In the interim, buyer agents will need to understand the risk in representing these clients if they find a property that does not offer cooperating compensation. Use existing tools designed for buyers and sellers like the North Carolina Real Estate Commission’s Working with Real Estate Agents Q&A to get the conversations about compensation started early. 

3. Use of Standard Form 220: Confirmation of Compensation, Agency, and Appointment: Agents may need to use Form 220 more often to negotiate cooperating compensation. Form 220 can be used by buyer agents and listing agents to negotiate cooperating compensation directly. Pursuant to Standard of Practice 3-1, cooperating agents should determine compensation terms, if any, prior to an offer being made. Remember that a REALTOR® may not make submission of an offer to purchase contingent on the listing firm adjusting its rate of cooperating compensation, if any. 

4. No Standard Commission Rates. It bears repeating that there is no standard commission rate. This is true for listing firm commissions, buyer agent commissions, seller subagent commissions, and cooperating compensation. Agents should negotiate their compensation with their sellers and buyers, and it should reflect the agent’s skill, value, time, and other factors, including whether cooperating compensation (whether offered or accepted) is in the client’s best interest.

Huntersville, Lake Norman | NAR Settlement Guidelines

The NAR settlement agreement also mandates two key changes to the way members and MLS participants do business.

1. NAR agreed to create a new MLS rule prohibiting offers of compensation on the MLS. This would mean that offers of compensation could not be communicated via an MLS, but they could continue to be an option consumers could pursue off-MLS through negotiation and consultation with real estate professionals.
2. NAR also agreed to create a new rule requiring MLS participants working with buyers to enter into written agreements with their buyers before the buyer tours a home. NAR has long encouraged its members to use written agreements to help consumers understand exactly what services and value they provide, and for how much.
   
   
   
   
   

Let's sit down and discuss the ins and outs on how I can assist you and navigate these new waters in Real Estate Transactions!