National Real Estate Exam (PSI)Property DisclosuresMedium
A listing agent learns from the seller that the home's foundation has a known crack that was patched over with new drywall, hiding the issue. What is the agent's best course of action?
- ADisclose the defect only if a buyer specifically asks about the foundation
- BRecommend the seller obtain a new appraisal instead of disclosing the defect
- CSay nothing, since the seller's disclosure form is the seller's sole responsibility
- DAdvise the seller to disclose the known latent defect to potential buyers, since concealment could expose both parties to liability
Show answer & explanationAnswer & explanation
Correct answer: D. Advise the seller to disclose the known latent defect to potential buyers, since concealment could expose both parties to liability
Agents have a duty to advise clients to disclose known material/latent defects; failing to disclose a known hidden defect can constitute fraud or misrepresentation, exposing both the seller and the agent to liability.
Why the other options are wrong
- A. Waiting to be asked does not satisfy the affirmative duty to disclose known material facts.
- B. An appraisal does not substitute for legally required disclosure.
- C. Agents cannot ignore known material facts even if the seller fills out the form.
Duty to Disclose Known Defects
Real estate licensees and sellers have an affirmative duty to disclose known material facts, including concealed latent defects, to protect buyers and avoid liability.
- Concealment of known defects can constitute fraud
- Duty applies to both sellers and their agents
- Disclosure should occur proactively, not only when asked
Memory trick: Known and hidden? Tell them — don't let silence be misleading.