New York Real Estate Salesperson ExaminationLaws of AgencyHard
A real estate broker lists a property for sale. The seller informs the broker that the basement occasionally floods after heavy rain, but they have always managed to clean it up quickly. The seller instructs the broker not to disclose this information to potential buyers. What is the broker's primary obligation in this situation?
- ADisclose the flooding issue to potential buyers as a material fact.
- BFollow the seller's instruction to maintain confidentiality.
- COnly disclose if specifically asked by a potential buyer.
- DAdvise the seller to disclose the issue, but if they refuse, keep it confidential.
Show answer & explanationAnswer & explanation
Correct answer: A. Disclose the flooding issue to potential buyers as a material fact.
The flooding basement is a material fact that affects the property's value and desirability. A real estate broker has an obligation to disclose all known material facts to potential buyers, even if the seller instructs them not to. This duty overrides the duty of obedience to the client when it comes to material defects.
Why the other options are wrong
- B. The duty to disclose material facts to third parties (buyers) generally overrides the duty of obedience or confidentiality to the client when it involves a safety or structural issue.
- C. Waiting to be asked is insufficient; proactive disclosure of material facts is required.
- D. While advising the seller is good, the ultimate obligation is to disclose the material fact to the buyer, even if the seller refuses.
Disclosure of Material Facts (Agent)
An agent's obligation to reveal all known material facts about a property to all parties in a transaction, regardless of who they represent, even if it goes against the client's wishes.
- Applies to all known and latent defects.
- Overrides client confidentiality/obedience for safety/value.
- Protects buyers and avoids misrepresentation.
Memory trick: Material facts outweigh client's silent pacts.