A real estate broker is representing a seller. During a property inspection, the inspector finds evidence of a significant, undisclosed structural issue in the foundation. The seller instructs the broker not to disclose this defect to potential buyers, as they fear it will jeopardize the sale. What is the broker's ethical and legal obligation in this situation?
- ATo obey the seller's instruction, as confidentiality is paramount.
- BTo terminate the listing agreement, as they cannot comply with the seller's request.
- CTo only disclose the defect if a buyer specifically asks about the foundation.
- DTo disclose the defect to all prospective buyers, even against the seller's wishes.
Show answer & explanationAnswer & explanation
Correct answer: D. To disclose the defect to all prospective buyers, even against the seller's wishes.
While an agent owes a duty of obedience to their principal, this duty does not extend to illegal or unethical instructions. A real estate agent has a legal and ethical obligation to disclose all known material facts, especially defects that could affect a property's value or safety, to all parties in the transaction, regardless of the principal's wishes.
Why the other options are wrong
- A. The duty of obedience does not override the duty to disclose material defects or legal/ethical obligations.
- B. Terminating the agreement might be an option if the seller insists, but the immediate duty is to disclose.
- C. Waiting for a direct question is insufficient; proactive disclosure of known material defects is required.
Duty to Disclose Material Defects (to all parties)
A real estate agent's legal and ethical obligation to reveal all known material facts concerning a property's condition, especially defects that affect value or safety, to all parties in a transaction, regardless of who they represent.
- Applies to all known material facts (defects).
- Owed to all parties (buyer and seller).
- Overrides principal's instructions not to disclose.
- Failure to disclose can lead to liability.
Memory trick: Disclose ALL known material facts to ALL parties.