In the world of real estate, a material fact is any information that can impact a buyer's decision to enter into a purchase contract or affect the price they are willing to pay for a property. Both residential and commercial properties are subject to material fact disclosure requirements. It is important for real estate agents to disclose all material facts to potential buyers, as failing to do so could have legal implications. If you find yourself in need of legal guidance, it's recommended to consult a real estate attorney.
How do you define material facts?
To be considered a material fact, the information must be a verifiable fact that can either add or detract from the value of a property or potentially pose a danger to its occupants. This information can significantly affect the legitimacy and enforceability of a contract.
How do material facts work?
In all states, agents, brokers, and sellers are required to disclose any information that could potentially impact the salability of a property. For example, if a property has experienced water damage, the agent must inform potential buyers of this, even if the damage may not be visible years later. Significant water damage can cause buyers to reconsider their offer or whether they want to proceed with the purchase.
Types of material facts
Material facts can vary greatly, from physical flaws in a property to more intangible ones, such as rumors of paranormal activity. Here are a few examples:
1. Issues with home condition and repair
Most states require the disclosure of known defects in structures. Problems with the roof or foundation can lead potential buyers to change their minds or adjust their price offer. Even if the agent or seller does not disclose serious defects, most lenders will still require home inspections and appraisals. These issues are generally difficult to hide from buyers.
For instance, imagine a real estate agent showing a home to a prospective buyer. Upon lifting an area rug corner, they discover a major foundation crack across the floor of the main room. This discovery leads the buyer to change their mind about the purchase. In this case, the seller or listing agent should have disclosed this information upfront.
2. Death or murder in the home
While not all states require disclosure of prior deaths in a home, some states do consider them as "emotional defects." This category includes property crimes such as murder or other violent acts committed on the premises. It is advisable to check your state's specific reporting requirements in such cases. Natural causes and suicides may have limitations.
Interestingly, a California court ruled that murders in homes are not considered material facts that need to be disclosed. However, it is always best to familiarize yourself with your state's laws regarding this matter. Contrary to popular belief, there have been cases where buyers were successful in legal actions against sellers who did not disclose prior murders in a purchased home. Additionally, the disclosure of violent deaths, even if they were not explicitly considered murders, is sometimes necessary. For instance, if a home was defended against an intruder, it is essential to disclose that information.
3. Haunted houses
In many states, ghosts, hauntings, and paranormal activity are not considered material facts. However, there may be instances where a property may have unique characteristics, such as a backyard area dedicated to departed pets or proximity to ancient burial sites. In cases where there is uncertainty about what should be disclosed, it is generally recommended to err on the side of caution and disclose the information.
4. Animals as material facts
Depending on the state, sellers may be required to disclose any issues related to animals or pests on the property. This includes problems with bee swarms, scorpions, rabid animals, as well as concerns about animals in the neighborhood. For instance, if a neighbor's dog is known to be excessively noisy or if a neighbor is raising chickens, these factors should be disclosed. Failure to disclose such information can result in legal consequences, as demonstrated by a case in Iowa where a brokerage had to pay damages for not disclosing an HOA restriction on the number of dogs allowed per house. This failure led to the cancellation of the deal, causing the property to stay on the market for an extended period.
What must the information be disclosed?
In California, all material facts that can affect the value or desirability of a property must be disclosed to buyers. While there is no specific definition or rule outlining what constitutes a material fact, it generally refers to any fact that has a significant and measurable impact on the property's value. If a seller fails to disclose an unknown fact to a buyer, the buyer may have grounds to cancel the purchase of the property.
Sellers should disclose any material facts relevant to the sale of the house, including structural issues, soil problems, leaking roofs, unpermitted constructions, and noise problems in the neighborhood, among others. It is always better to err on the side of caution and disclose any information that may be relevant to the buyer. When in doubt, consult with an experienced real estate attorney to ensure compliance and protect against potential claims of deliberate concealment.
When should the disclosure be done?
To enable buyers to make informed decisions, sellers should provide disclosures as soon as possible. By identifying potential issues early on, sellers have the opportunity to relist the property if the buyer cancels the transaction due to the disclosure. According to the Residential Sales Agreement of the California Association of Realtors, sellers must provide all necessary disclosures within seven days of accepting the sale agreement.
It is common practice for sellers to prepare all disclosure documents before listing their property, ensuring they are ready to present everything requested by the buyer as soon as the offer is accepted. Buyers have a period of five days from the date they receive a late disclosure to cancel the sales transaction, even after they have waived all sale contingencies. The cancellation period may vary depending on the contract. Therefore, it is in the best interest of the seller to provide disclosures as early as possible after accepting an offer.
Does the seller have to disclose when selling the property "AS-IS"?
Yes, the seller is still required to disclose material facts even when selling a property "as-is." In an "as-is" sale, the buyer accepts any visible defects in the property. However, this does not exempt sellers from disclosing material facts or conditions that may not be readily apparent. Structural or soil problems, for example, may not be obvious to the average person and must be disclosed regardless of the sale being "as-is." In such cases, it is safer for the seller to disclose visible problems to avoid potential disputes about whether the problem was visible or concealed. For instance, a buyer may claim that a rug or furniture covered a defect on the floor, making it non-visible before the seller moved out.
Is it necessary for a seller to disclose a repaired defect?
The law is unclear as to whether a seller must disclose a previously repaired defect that has been fully fixed. However, court rulings have determined that if the seller believed the property was in good repair, they should disclose any previous history of mudslides. Additionally, the seller cannot be certain that the issue was properly repaired, as they are not contractors or engineers. In these cases, sellers should inform buyers about any defects they believe have been completely repaired to minimize future risks and potential legal disputes.
Death in the property
As long as the prior occupant died more than three years before the potential buyer's offer, sellers are not required to disclose this information. However, if the buyer specifically asks whether anyone died at the property, the seller must answer truthfully.
Can an individual seller be held accountable for failing to disclose certain details?
If a required disclosure is not made in a timely manner, the buyer has the right to cancel the sale. The seller may be held responsible for the cost of repairs and any damages resulting from undisclosed defects. In extreme cases, the court could order the seller to take back the property, reimburse the buyer for the sale price, and cover other damages. The seller may also be liable for the buyer's attorney fees. If the seller deliberately concealed a material fact, they may even be subject to punitive damages.
Given the potential consequences of failing to disclose material facts, sellers should take their disclosure duties seriously. By making the necessary disclosures, sellers not only protect themselves from legal and financial consequences but also gain peace of mind. If a buyer were to discover a problem that could have been disclosed, they have up to three years to sue the seller for fraud and concealment. Disclosing all legally required information is much better than facing potential lawsuits for an extended period. If there are any questions regarding property disclosures or the need for settlement documents, sellers should seek advice from an experienced real estate attorney.
Plaintiff & defendant trial goals
In a misrepresentation of material fact case, both plaintiffs and defendants have different goals during trial. As the plaintiff, your objective is to prove that the defendant intentionally concealed the material fact. Conversely, the defendant may claim that the plaintiff was already aware of the fact, that it was unknown to both parties, or that they caused the "material fact" themselves.
In some cases, misrepresentation of material facts is evident. For instance, consider a real estate situation where a seller covers up serious water intrusion in the basement of a house with thin wood panels before selling it. The seller is aware of the issue but does not disclose it to the buyer. Once the buyer moves in, they discover the concealed damage. Photo documentation and hiring a home inspector can provide strong evidence of the seller's guilt. However, proving intent may not always be straightforward, and the plaintiff must demonstrate that the seller intentionally misled them for personal gain.
Benefits of Hiring an Attorney
Plaintiffs may choose to represent themselves if the damages resulting from material misrepresentation exceed the value lost. However, it is worth considering hiring an attorney for cases involving damages greater than $25,000. This holds true for defendants, especially when substantial damages are involved.
As a plaintiff, you can potentially seek damages and attorney fees to recover the difference in value caused by the misrepresentation. Even if the sale is overturned, you can pursue restitution of your money, attorney fees, and other damages.
An attorney brings expertise in law and can present evidence in a way that strengthens its validity during trial. Plaintiffs who have suffered financial losses due to misrepresentation can protect their assets and defend against claims for damages brought against them. Having an attorney on your side is the ultimate defense against potential trial losses.
Do you need an attorney for material misrepresentation?
If you are involved in a material misrepresentation case, whether as a plaintiff or a defendant, seeking legal assistance is highly recommended. Attorneys who specialize in misrepresentation of material facts cases, as well as business and real estate litigation, can provide the expertise necessary to assess your case properly. The Attorney Real Estate Group specializes in California law, ensuring you have the right legal representation. Don't hesitate to reach out to us when you believe that legal guidance is essential.
