A buyer's agent discovers a significant structural defect in a property during a showing. The buyer, who is very eager to purchase the home, instructs the agent not to disclose this defect to the seller or the seller's agent, hoping to negotiate a lower price without the seller being fully aware of the issue. What is the agent's appropriate action?
- AInform the buyer that the defect must be disclosed to the seller or seller's agent.
- BAdvise the buyer to obtain an inspection report that details the defect, then present the offer.
- CFollow the buyer's instructions, as confidentiality is paramount to the principal.
- DTerminate the agency relationship with the buyer due to conflicting instructions.
Show answer & explanationAnswer & explanation
Correct answer: A. Inform the buyer that the defect must be disclosed to the seller or seller's agent.
While an agent owes confidentiality to their principal, this duty does not extend to concealing material facts that could defraud another party. California law requires disclosure of known material defects to all parties, even if discovered by the buyer's agent. The agent has a duty to deal honestly and fairly with all parties and cannot be complicit in a fraudulent omission.
Why the other options are wrong
- B. While an inspection is good practice, it doesn't relieve the agent of the immediate duty to disclose a known material defect to the seller/seller's agent if the buyer is attempting to conceal it.
- C. This is incorrect. Confidentiality does not override the duty to disclose material facts or prevent fraud.
- D. Terminating the relationship might be a last resort if the buyer insists on unethical behavior, but the first step is to educate the buyer on the disclosure requirements.
Agent's Duty to Disclose Material Facts (to all parties)
The obligation of a real estate agent to reveal all known facts that materially affect the value or desirability of a property to all parties in a transaction, including the seller, even if discovered by the buyer's agent.
- Applies to known, material facts
- Extends beyond the principal to all transactional parties
- Aims to prevent fraud and misrepresentation
- Overrides confidentiality when concealing would be fraudulent
Memory trick: Ethics guide the agent's path, even when clients try a darker math.