Seller and Real Estate Broker
Under Duty to Disclose
A real estate broker is under a duty to disclose facts materially affecting the value or desirability of the property that are
known to him or which through reasonable diligence should be known to him." Easton v. Strassburger, 152 Cal. App. 3d 90,
California Real Estate Disclosures
1. Abandonment of Caveat Emptor
California was the first state to abandon caveat emptor in the
real estate arena, enacting numerous
statutes and handing down even more decisions, like Easton, that provide a
buyer with sufficient information for
him/her to make an educated judgment in buying his/her home. Even though
real estate practitioners know that
statutory and common law impose strict duties of disclosure on sellers, the amount of litigation arising from
inadequate disclosure suggests that seller and agent disclosure duties are gravely misunderstood. This section
highlights some of the most significant disclosure duties imposed on sellers and agents by statutory and common law.
This section presents an overview of important real estate disclosure requirements. It is limited to disclosures
concerning the condition of property being transferred. Because the laws concerning disclosure obligations may change,
you should use this section only as a general source of information.
2. Statutory Duties.
There are four primary sets of statutes that contain disclosure duties that are relevant to nearly all sales of
B. Transfer Disclosure Statement.
Written Transfer Disclosure Statement
With very limited exceptions, whenever there is a sale or
transfer of property, the transferor must deliver a
written transfer disclosure
statement ("TDS") to the prospective transferee in the form prescribed by
statute. Cal. Civ. Code § 1102.6. The TDS requires that the seller provide
certain information regarding the physical condition of the property. While not
a warranty, the TDS provides information that prospective buyers may rely on in
deciding whether and on what terms to purchase the property. 1 Miller & Starr,
California Real Estate 2d, § 1:123, at 425 (1989). Remember: TDS exemptions
relate exclusively to the seller's Section 1102 disclosure obligations and do
not relieve brokers of their independent Section 2079 inspection disclosure
duties. Where a sale or transfer is subject to a TDS exemption, the brokers is
still under an obligation to make all material disclosures in a separate
writing. Most importantly, Section 1102 disclosures have no effect on other
disclosure obligations including obligations to disclose any material facts
affecting the value or desirability of the property.
1. As Is Provision.
Any provision that requires the buyer to accept the property
"as is" merely means that the buyer accepts the property in the condition
that is observable by him. As a result, "as is" provisions are ineffective
in shielding the seller and agent from any fraud liability arising from
nondisclosure. A common trap sellers and agents fall into is when the
seller's property needs rehabilitation, but the seller cannot afford to
complete the necessary repairs. The seller and agent attempt to sell the
property by discounting the price and selling the property "as is" to avoid
disclosure. Even in such circumstances, the seller and agent have a duty to
disclose all known material defects or face significant liability. There is
no buyer "economic assumption of risk."
2. Inaccurate Disclosure.
Civil Code Section 1102.4 provides that required disclosures
may be provided by public agencies or contractors acting within the scope of
their professional license or expertise. The delivery of required disclosures to
a prospective transferee by any agency or contractor acting within the scope of
their expertise will relieve the seller and agent of any further duty with
respect to that item of information. Problems arise, however, when the
professionally prepared disclosure report contains errors, omissions, or
inaccuracies. The problems are compounded when the inaccurate disclosure report
is prepared by a professional outside the scope of his/her expertise.
Unfortunately, it is not uncommon to find negligence on the part of these
"experts." In order to shift the liability to the expert preparer of the
disclosure report pursuant to Section 1102.4, the seller and agent must exercise
ordinary care in obtaining the disclosure information. Thus, a seller and agent
will be liable for inaccurate disclosures if the disclosures are prepared by (1)
someone acting outside the scope of his/her expertise or (2) a substandard
disclosure expert. .
3. Disclosing The Unknown.
Where there are red flags that a seller living on the
property reasonably should have noticed, then there is a duty to disclose those red
flags, or a duty to make further investigations or inspections to determine
whether or not there are problems. Due to the potential for confusion, the
California legislature clarified its position with the enactment of Civil Code
section 1102.5. This section provides that if an item of required disclosure
information is unknown or unavailable to the seller, the seller and the seller's
agent must make a reasonable effort to ascertain it. Thus, a duty to investigate
is imposed solely for the purposes of satisfying the statutory disclosure
4. Good Faith Disclosure Requirement.
The California legislature included a requirement of good
faith in the course of satisfying the disclosure obligations it imposed. To
satisfy this good faith requirement, both the seller and the seller's agent have
an affirmative duty to disclose to the prospective buyer all facts which
materially affect the value or desirability of the property that are known to
them and are not known to, or within reach of, the buyer. For the agent, this
same duty exists whether s/he obtains this knowledge from or independently from
C. Broker's Duty to Prospective Buyer.
1. Civil Code Section 2079 specifically addresses the disclosure
obligations of licensed
real estate brokers, listing brokers, and selling
brokers. Section 2079 is a codification of the expansion of a broker's duty
to inspect and disclose found in Easton v. Strassburger, 152 Cal. App. 3d 90
(1984). In Easton, the seller's agents noticed "red flags" of possible soil
problems during their visual inspection of the property. Despite the agents'
knowledge of what these red flags could indicate, they made no further
inquiry or investigation regarding past soils problems. Shortly after the
property was sold for $170,000, it suffered massive earth movement which
reduced its value to $20,000, prompting the buyer to sue the listing broker
for negligence. In this seminal case, the Court, for the first time, ruled
that a real estate broker acting for a seller of residential real property
has an "affirmative duty to conduct a reasonably competent and diligent
inspection of the residential property listed for sale and to disclose to
prospective purchasers all facts materially affecting the value or
desirability of the property that such an investigation would reveal." In
reviewing the lower court proceedings, the Court determined that the jury
was "well within the bounds of reason when it concluded that a reasonably
diligent and competent inspection of the property would have included
something more than a casual visual inspection and a general inquiry of the
owners," and that the judgment for negligence against the broker was amply
supported by the evidence. Section 2079 creates a duty of inspection on
brokers to conduct a "reasonably competent and diligent visual inspection of
the property offered for sale" and disclosing to the prospective purchaser
"all facts materially affecting the value or desirability of the property
that such an inspection would reveal." This disclosure can be made via
Sections III and IV of the TDS form or in a separate writing. Further, the
real estate broker's standard of care owed by the real estate broker is
defined as "the degree of care that a reasonably prudent real estate
licensee would exercise and is measured by the degree of knowledge through
education, experience, and examination, required to obtain a license." This
standard, which is higher than the reasonably prudent person standard
applicable to most common law tort claims (including misrepresentation), was
adopted by the legislature because equity demands that a broker who holds
himself out to the public as an experienced, licensed professional in the
field of residential real property transactions, and who financially
benefits as a result of so doing, should be held to a standard of care
commensurate with that position.
Repeated floods, fires and earthquakes, plus increasing
ability to map the areas susceptible to natural disasters, prompted
legislators to mandate sellers to tell buyers more about the home they may
buy. In addition to the usual Transfer Disclosure Statement, a seller or the
seller's agent must make the appropriate natural hazard disclosures if the
property is in one or more of the following zones or areas:
1. Zone A or Zone V (Special Flood Hazard Area).
Zone A or Zone V (Special Flood Hazard Area) as designated by
the Federal Emergency Management Agency ("FEMA"). The seller's agent or the
seller if acting without an agent, must make this disclosure if: the seller or
seller's agent has actual knowledge that the property is in a special flood
area; or the local jurisdiction has compiled a list of parcels that are in a
special flood area and has posted at the offices of the county recorder, county
assessor and county planning agency a notice regarding location of the list.
Government Code § 8589.3. .
2. An Area of Potential Flooding./a>
An Area of Potential Flooding as shown on a map as an area
which will be inundated if a dam fails. The seller's agent, or the seller if
acting without an agent, must make this disclosure if: the seller, or seller's
agent, has actual knowledge that the property is within a delineated inundation
area; or the local jurisdiction has compiled a list of parcels that are in the
inundation area and has posted at the offices of the county recorder, county
assessor, and county planning agency a notice regarding the location of the
list. Government Code § 8589.4. .
3. A designated Very High Fire Severity Zone.
A designated Very High Fire Severity Zone the seller must
make this disclosure if: the seller, or seller's agent, has actual knowledge
that the property is in a designated very high fire severity zone; or the
local jurisdiction has received maps of such properties which includes the
seller's property and has posted at the offices of the county recorder,
county assessor, and county planning agency a notice regarding location of
the map and any changes to it. Government Code § 51183.5. .
4. A designated Wildland Fire Area.
A designated Wildland Fire Area ("State Responsibility Area")
that may contain substantial forest fire risks and hazards. The seller must make
this disclosure if: the seller, or the seller's agent, has actual knowledge that
the property is in a designated wildland fire zone; or the city or county has
received a map of such properties which includes the seller's property and has
posted at the offices of the county recorder, county assessor, and county
planning agency a notice regarding the location of the map and any changes to
it. Public Resources Code § 4136.
5. An Earthquake Fault Zone.
An Earthquake Fault Zone the seller's agent, or the seller if
acting without an agent, must disclose that the property is in one of these
zones if: the seller, or the seller's agent, has actual knowledge that the
property is within a delineated earthquake fault zone; or the city or county
has received a map of such properties which includes the seller's property
and has posted at the offices of the county recorder, county assessor, and
county planning agency a notice regarding the location of the map and any
changes to it. Public Resources Code § 2621.9.
6. A Seismic Hazard Zone.
A Seismic Hazard Zone in an earthquake, properties in one of
these zones may be subject to strong ground shaking, soil liquefaction, or
landslide. The seller's agent, or the seller if acting without an agent,
must disclose that he property is in one of theses zones if: the seller, or
seller's agent, has actual knowledge that the property is within a
delineated seismic hazard zone; or the city or county has received a map of
such properties which includes the seller's property and has posted at the
offices of the county recorder, county assessor, and county planning agency
a notice regarding the location of the map and any changes to it. Public
Resources Code § 2694.
Natural Hazard Disclosure Statement.
These disclosures must be made on the Natural Hazard
Disclosure Statement ("NHDS") or on the Local Option Real Estate Transfer
Disclosure Statement ("LORETDS"), provided the local jurisdiction has mandated
use of a LORETDS for some disclosure purpose and the information and warnings
are substantially the same as on the NHDS. In the event that a transfer is
exempt from the use of an NHDS form, the required disclosures must be made in a
separate writing. The following is the required format for the NHDS as provided
by Cal. Civ. Code Section 1102.6c:
NATURAL HAZARD DISCLOSURE STATEMENT
This statement applies to the following property:
____________________ ____________________ ______________:
The transferor and his or her agent(s) disclose the following information
with the knowledge that even though this is not a warranty, prospective buyers
may rely on this information in deciding whether and on what terms to purchase
the subject property. Seller hereby authorizes any agent(s) representing any
principal(s) in this action to provide a copy of this statement to any person or
entity in connection with any actual or anticipated sale of the property.
The following are representations made by the seller and his or her agent(s)
based on their knowledge and maps drawn by the state. This information is a
disclosure and is not intended to be part of any contract between the buyer and
THIS REAL PROPERTY LIES WITHIN THE FOLLOWING HAZARDOUS AREA(S):
A SPECIAL FLOOD HAZARD AREA (Any type Zone 'A' or 'V') designated by the
Federal Emergency Management Agency.
Yes ______ No ______ Do not know and information not available from local
AN AREA OF POTENTIAL FLOODING shown on a dam failure inundation map pursuant
to Section 8589.5 of the Government Code. Yes _______ No ______ Do not know and
information not available from local jurisdiction _____.
A VERY HIGH FIRE HAZARD SEVERITY ZONE pursuant to Section 51178 or 51179 of
the Government Code. The owner of this property is subject to the maintenance
requirements of Section 51182 of the Government Code. Yes _______ No ______
A WILDLAND AREA THAT MAY CONTAIN SUBSTANTIAL FOREST FIRE RISKS AND HAZARDS
pursuant to Section 4125 of the Public Resources Code. The owner of this
property is subject to the maintenance requirements of Section 4291 of the
Public Resources Code. Additionally, it is not the state's responsibility to
provide fire protection services to any building or structure located within the
wildlands unless the Department of Forestry and Fire Protection has entered into
a cooperative agreement with a local agency for those purposes pursuant to
Section 4142 of the Public Resources Code. Yes _______ No ______
AN EARTHQUAKE FAULT ZONE pursuant to Section 2622 of the Public Resources
Code. Yes _______ No ______
A SEISMIC HAZARD ZONE pursuant to Section 2696 of the Public Resources Code.
Yes (Landslide Zone) _______ Yes (Liquefaction Zone) __________ No _______ Map
not yet released by state _________
THESE HAZARDS MAY LIMIT YOUR ABILITY TO DEVELOP THE REAL PROPERTY, TO OBTAIN
INSURANCE, OR TO RECEIVE ASSISTANCE AFTER A DISASTER. THE MAPS ON WHICH THESE
DISCLOSURES ARE BASED ESTIMATE WHERE NATURAL HAZARDS EXIST. THEY ARE NOT
DEFINITIVE INDICATORS OF WHETHER OR NOT A PROPERTY WILL BE AFFECTED BY A NATURAL
DISASTER. BUYER(S) AND SELLER(S) MAY WISH TO OBTAIN PROFESSIONAL ADVICE
REGARDING THOSE HAZARDS AND OTHER HAZARDS THAT MAY AFFECT THE PROPERTY.
Seller represents that the information herein is true and correct to the best
of the seller's knowledge as of the date signed by the seller.
Signature of Seller _________________________ Date __________
Agent represents that the information herein is true and correct to the best
of the agent's knowledge as of the date signed by the agent.
Signature of Agent __________________________ Date _________
Signature of Agent __________________________ Date _________
Buyer represents that he or she has read and understands this document.
Signature of Buyer __________________________ Date _________
IMPORTANT NOTE: Although the Natural Hazard Disclosure Statement form is
mandated only for properties subject to the Civil Code article entitled
"Disclosure Upon Transfer of Residential Property", the appropriate disclosures
must be made in some manner when any real property located in one of the zones
View/Print Natural Hazard Form in PDF format.
E. Natural Hazard Disclosure Requirements.
1. Military Ordnance Location.
Federal and state agencies have identified certain areas once
used for military training during World War II and which may contain live
ammunition and other explosive devices. A seller of residential property, with
actual knowledge that the property is located within one mile of such a
potential hazard, must give the buyer written notice as soon as practicable
before transfer of title. Civil Code §§ 1102.15, 1940.7..
2. Disclosure Required For Manner/Occurrence of Death.
An owner of property or the owner's agent is required to
disclose to the buyer or tenant the manner or occurrence of the occupant's death
upon the real property if the death occurred within three (3) years of the
transferee's offer to purchase, lease or rent the property. Civil Code § 1710.2.
3. Disclosure of Registered Sex Offender Database - Megan's Law.
Every lease or rental agreement for residential property and
every contract for the sale of real property must contain the following notice
in not less than eight-point type: NOTICE: THE CALIFORNIA DEPARTMENT OF JUSTICE,
SHERIFF'S DEPARTMENTS, POLICE DEPARTMENTS SERVING JURISDICTIONS OF 200,000 OR
MORE AND MANY OTHER LOCAL LAW ENFORCEMENT AUTHORITIES MAINTAIN FOR PUBLIC ACCESS
A DATA BASE OF THE LOCATIONS OF PERSONS REQUIRED TO REGISTER PURSUANT TO
PARAGRAPH (1) OF SUBDIVISION (A) OF SECTION 290.4 OF THE PENAL CODE. THE DATA
BASE IS UPDATED ON A QUARTERLY BASIS AND A SOURCE OF INFORMATION ABOUT THE
PRESENCE OF THESE INDIVIDUALS IN ANY NEIGHBORHOOD. THE DEPARTMENT OF JUSTICE
ALSO MAINTAINS A SEX OFFENDER IDENTIFICATION LINE THROUGH WHICH INQUIRIES ABOUT
THE INDIVIDUAL MAY BE MADE. THIS IS A "900" TELEPHONE SERVICE. CALLERS MUST HAVE
SPECIFIC INFORMATION ABOUT THE INDIVIDUAL THEY ARE CHECKING. INFORMATION
REGARDING NEIGHBORHOODS IS NOT AVAILABLE THROUGH THE "900" TELEPHONE SERVICE.
The delivery of this notice is deemed to be adequate to inform the tenant or
buyer regarding the proximity of registered sex offenders. Civil Code §
4. Earthquake Safety, Homeowner's Guide.
As a result of the Loma Prieta earthquake of October 17, 1989,
the legislature declared that the disclosure of earthquake deficiencies should
be provided to a prospective purchaser along with information on the possible
vulnerabilities of the dwelling being purchased. The transferor of real property
containing a residential dwelling built prior to January 1, 1960, is required to
give the transferee a copy of the "Homeowner's Guide to Earthquake Safety" and
complete the earthquake hazards disclosure regarding the property as soon as
practicable before the transfer. The "Homeowner's Guide to Earthquake Safety,"
which is published by the Seismic Safety Commission, and includes maps and
information on geological and seismic hazard conditions for all areas of the
state. Business & Professions Code § 10149, Government Code §§ 88971.1, 8897.5,
Civil Code § 2079.8). View/Print Earthquake Guide
to Safety in PDF format.
5. Earthquake Safety, Commercial Property Owner's Guide.
The transferor or his agent of a building constructed of
precast ("tilt-up") concrete wall construction or reinforced masonry buildings
with inadequate wall anchorage to wood frame floors or roofs, built before
January 1, 1975, must deliver to the purchaser a copy of the "Commercial
Property Owner's Guide to Earthquake Safety" as soon as practicable before the
sale, transfer, or exchange. The Commercial Guide is also published by the
Seismic Safety Commission, and includes similar information. Business &
Professions Code § 10147, Government Code §§ 8875.6, 8893.2, 8893.3, Civil Code
6. Lead-Based Paint Pamphlet and Form.
Lead-based paint was banned for residential use in 1978 due to
its potential health hazards. The Federal Environmental Protection Agency (EPA)
publishes a pamphlet titled "Protect Your Family From Lead In Your Home." This
pamphlet describes ways to recognize and reduce lead hazards. A seller (or
lessor) of target housing must deliver this pamphlet to a prospective buyer (or
tenant) before the contract is formed. In addition, the seller (or lessor) is
required to deliver to the buyer (or tenant) a form, which contains lead-based
paint hazards disclosures, a Lead Warning Statement. The buyer's (or tenant)
must execute the form to indicate acknowledgment of receipt of that information,
which should then be included as an attachment to the contract. Sellers (or
lessors) and agents must retain this document for three years from the
completion of the sale (or commencement of the lease/rental). A real estate
agent must ensure that: his/her principal (seller or lessor) is aware of the
disclosure requirements; the transaction documentation includes the required
notifications and disclosures; the buyer or lessee/renter receives the EPA
pamphlet; and in case of a sale, the buyer is offered an opportunity to conduct
a risk assessment for lead-based paint. 42 U.S.C.S. § 4852d. View/Print Lead Based Paint Brochure in PDF format
7. Environmental Hazards.
The seller or seller's agent must disclose to a buyer all
environmental hazards within the actual knowledge of the seller or seller's
agent. The seller or seller's agent should give the buyer of real property a
pamphlet titled "Environmental Hazards: A Guide for Homeowners, Buyers,
Landlords and Tenants." Civil Code § 2079.7.
Hazards Guide in PDF format
8. Mello-Roos Special Community Facilities District.
The Mello-Roos Community Facilities District Act of 1982
authorizes the formation of community facilities districts, the issuance of
bonds, and the levying of special taxes to finance designated public facilities
and services. The seller of a property consisting of one-to-four dwelling units
subject to the lien of a Mello-Roos community facilities district must make a
good faith effort to obtain from the district a disclosure notice concerning the
special tax and give the notice to a prospective buyer. Civil Code § 1102.6b.
9. Window Security Bars.
A seller must disclose on the Transfer Disclosure Statement
("TDS") or, if mandated, the Local Option TDS, the existence of window security
bars and any safety release mechanism on the bars. Civil Code § 1102.16.
10. Smoke Detector Statement of Compliance.
Whenever a sale (or exchange) of a single family dwelling
occurs, the seller must provide the buyer with a written statement representing
that the property is in compliance with California law regarding smoke
detectors. Health and Safety Code §§ 13113.7, 13113.8, 18029.6.
View/Print Smoke Detector Statement in PDF format.
11. Delivery of Structural Pest Control Inspection and Certification Reports.
The law does not require that a structural pest control
inspection be performed prior to transfer of any real property. However, if
required by the contract or by the lender, the seller or the seller's agent must
deliver to the buyer a copy of a report and written certification, prepared by a
registered structural pest control company, regarding the presence or absence of
wood-destroying organisms. Delivery must occur before transfer of title and the
real estate broker responsible for delivery must retain for three years a record
of the actions taken to effect delivery. Civil Code § 1099; Business and
Professions Code § 8519 et seq. and 10148.
12. Energy Conservation Retrofit and Thermal Insulation Disclosures.
State law prescribes minimum energy conservation standards for
all new construction. Local Governments also have ordinances that impose
additional energy conservation measures on new and/or existing homes. Some local
ordinances impose energy retrofitting as a condition of the sale of an existing
home. The seller and or agent(s) should disclose to a prospective buyer the
requirements of the various ordinances, as well as who is responsible for
compliance. Federal law requires that a "new home" seller (including a
subdivider) disclose in every sales contract the type, thickness, and R-value of
the insulation which has been or will be installed. Federal Trade Regulation §
460.16; Public Resources Code § 25402 et seq.
13. Foreign Investment In Real Property Tax.
Federal law requires that a buyer of real property must
withhold and send to the Internal Revenue Service (IRS) 10% of the gross sales
price if the seller of the real property is a "foreign person." The primary
grounds for exemption from this requirement are: (1) the seller's non-foreign
affidavit and U.S. taxpayer I.D. number; (2) a qualifying statement obtained
through the IRS attesting to other arrangements resulting in collection of, or
exemption from, the tax; or (3) the sales price does not exceed $300,000 and the
buyer intends to reside in the property. 26 U.S.C. § 1445.
14. Notice to Buyer of State Tax Withholding on Disposition of California Real
In some sales transactions, the buyer must withhold 3 1/3% of
the total sale price as state income tax and deliver the sum withheld to the
State Franchise Tax Board. The escrow holder, in applicable transactions, is
required by law to notify the buyer of this responsibility. A buyer's failure to
withhold and deliver the required sum may result in the buyer being subject to
penalties. If the escrow holder fails to notify the buyer, penalties may be
levied against the escrow holder. Transactions to which the law applies are
those in which: the seller shows an out of state address, or sale proceeds are
to be disbursed to a financial intermediary of the seller; the sales price
exceeds $100,000.00; and, the seller does not certify that he/she is a resident
of California or that the property being conveyed is his/her personal residence,
as defined in Section 1034 of the Internal Revenue Code. Revenue & Taxation Code
§§ 18805,18815, and 26131.
15. Notice Regarding the Advisability of Title Insurance.
In an escrow transaction for the purchase or exchange of real
property where a policy of title insurance will not be issued to the buyer or to
the parties to the exchange, the following notice must be provided to the buyer
or the parties exchanging the real property, which must be signed and
acknowledged in a separate document in the escrow: "IMPORTANT; IN A PURCHASE OR
EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO OBTAIN TITLE INSURANCE IN
CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY BE PRIOR RECORDED LIENS AND
ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE PROPERTY BEING ACQUIRED. A NEW
POLICY OF TITLE INSURANCE SHOULD BE OBTAINED IN ORDER TO ENSURE YOUR INTEREST IN
THE PROPERTY THAT YOU ARE ACQUIRING." [Note: While the statute does not
expressly assign the duty, in practice the delivery of the notice has become an
obligation of the escrow holder. A real estate broker conducting an escrow
pursuant to the exemption set forth in Financial Code Section 17006(d) would,
therefore, be responsible for delivery of the notice.] Civil Code § 1057.6.
16. Certification Regarding Water Heater's Security Against Earthquake.
The seller of any real property must certify in writing to a
prospective buyer that the water heater has been braced, anchored or strapped to
resist falling or horizontal movement due to earthquake motion. The California
Plumbing Code enumerates the minimum standards required. Health and Safety Code
17. Common Interest Development Disclosure.
The seller of a separate interest in a common interest
development such as a community apartment project,
development, or stock cooperative must provide a prospective buyer with certain
specified documents, such as financial statements of the
or other required documents as specified in the code. Civil Code §§ 1368, 1375,
F. The Common Law Duties.
1. Material Fact.
A fact is material as a matter of common law fraud if "a
reasonable man would attach importance to its existence or nonexistence in
determining his choice of action in the transaction in question." To avoid a
completely useless subjective standard, undisclosed facts are considered
material if they have a "significant" and "measurable" effect on the market
value of the property.
While the seller should realize what facts detrimentally affect the value of the
property, sellers often fail (or refuse) to recognize material facts. Thus, the
agent should not rely solely on the seller's interpretation of what facts will
affect the value and desirability of the property to a reasonable buyer. Some
facts are so obviously material that there is no issue as to materiality. In one
case, the buyer successfully sued the seller and the agents for fraud for
selling him a house and failing to disclose that
- The seller had performed electrical and other work without a permit and
in violation of building codes,
- The security gate was improperly wired,
- The driveway had been painted over to conceal defects, and
- The seller and agents failed to disclose that a main line of the Santa
Fe Railroad was located on a hill across the street from the property (train
passed 14 times a day!).
Finding all of these facts material, a jury awarded the buyer
the difference in value from what he believed to purchase and what he actually
In another case, the sellers and their agents were held
liable for fraud for failing to disclose that two bathrooms were in violation of
zoning ordinances. The bathrooms required demolition and the judgment against
the sellers and agents was $108,867 in general damages, $34,900 in punitive
damages, $12,290 in interest, $44,000 in attorney fees, and $2,000 in costs.
The following conditions represent the most common examples of
what the courts have repeatedly found to be so material so that a seller's
failure to disclose them is actionable:
The materiality of each of the facts listed above is
objectively determinable; in each case the undisclosed fact had a measurable
economic effect on the market value of the property or the value of the buyer's
use of the property.
2. Corrected Defects.
Sellers should disclose a prior problem even though they
believe it has been corrected. In 1982, a California court held that a seller
had to disclose prior slides and seepage even though the seller believed the
cause of the condition had been corrected. In the case of a nuisance, if an
injunction to stop the nuisance has been repeatedly violated, the seller is not
in good faith if he does not disclose the prior problems.