This blog post explains what a material fact is in real estate and provides some of my professional opinions on material facts and how agents should conduct themselves. This information can be generally accepted throughout Australia, not just in one state or territory.
What is a material fact in real estate?
A material fact is a fact had it been known by the client, it may have changed their decision.
A light-hearted example is an episode of The Simpsons called ‘Realty Bites’ that I sometimes like to show to students.
The episode turns into an ethical dilemma where Marge, the real estate agent, knows that a murder had occurred previously in the house that she is selling to Ned Flanders and his family. So under the law, Marge must disclose the fact of the murder to the buyers, even if it means potentially not getting the sale. Funnily enough, when Marge reveals the murder to the Flanders family, it only makes them want to buy the property even more!
Agents have got a duty of care towards their clients. Even if the client asks or doesn’t ask: if you know there’s a material fact inside that property that you should represent, such as a leaking bathroom on the first floor or lack of insulation, you need to tell the client.
That is part of what an agent’s job is. To act morally and ethically and show a reasonable effort to observe and have a look and ask questions about the property. Agents can clarify with the owner about the property and ask about its history.
Other examples of material facts that real estate agents should be disclosed could include (but are not limited to):
- a pool that’s not compliant
- an air conditioner that doesn’t work
- rectification work required in the frame that you can’t see walking around
- any previous work done on the property
- a window which needs repair
- different coloured brickwork around the property, which may have been added over time by other people
- pest problems
- insulation which may contain asbestos
Some of you may not know what asbestos is. It is a group of minerals that can be easily fractured into small invisible particles that become airborne- small enough for you to breathe in and sit inside your lungs and cause damage to your body. Many people over the years have suffered health effects from asbestos exposure. Asbestos can be present in fibro/cement pipes, cladding/sheeting or insulation inside a property. Even roofing can be made out of asbestos. All real estate agents must be aware of these types of dangers for themselves and others.
Agents may advise the buyers or sellers to have a pest and building inspection report done for the property. These reports and any material facts should then be provided to either buyer or seller. The agent can even advise that the other party also conduct their own reports as proper due diligence.
The buyer will either accept a material fact or want to look at another property. So the buyer is managing that material fact. You’ve told them as the agent, and you can confidently say you’ve disclosed it at the right time to the buyer before they enter into negotiations or sign any contracts.
The agent should find out the material facts about the property when they’re listing it, such as the owner’s ability to sell.
- Are they authorised to sign an agreement to sell?
- Are there any other parties?
- Are there any disputes with neighbours?
- Is the pool certified and registered?
- Can we check out the boundaries of the property?
- Are there any boundary pegs there?
- Are there any easements going through the property? Easements such as piping, electricity, or sewer can be above or below the property.
Remember, buyers, are spending their time, emotion and potentially money when getting close to talking about the conditions of the sale.
The buyers could ask you as the agent: “Oh, but before we sign the contract, is there anything else that we should know?”
Now, what do you do as the agent? In the back of your mind, you’re going: “Is there anything else that they’ve got to know? Well, I really should tell them about this pest and building report. I should tell them that the floorboards are warped, and the piers need to be resettled and straightened.”
If the agent doesn’t represent these material facts early and leaves it until the end, they could suffer and make clients unhappy. Unhappy or dissatisfied clients leave poor reviews for the agent or the real estate agency. This can ruin reputations. Agents and agencies risk fines from the regulator.
So it’s crucial that, as the real estate agent, you remember that it’s not your property. You don’t own it. You are acting as a facilitator, a conduit; you’re a conductor of the sale. So it’s not up to you to dictate what people know and don’t know because your commission’s on the line. It’s your job to act in the best interest of the buyer or seller, knowing the highest and best use and the highest and best price.
Consider this: Maybe the property has massive power lines running over the top, which buyers may not see the first time they attend a property, but as the agent, you’re looking out for and seeing these types of things. The agent’s job as a professional is to disclose these things in advertising. Not wait for the people to come out and look up and go, “Oh, ugly power lines. I don’t want to live next to a power line.” So disclose that in the ad somehow. Don’t take the power lines out of the picture or obscure them when you take a picture of the property.
Agents must not describe or make out there are views from the property that don’t exist. For example, there are no water views for a property, where you could only reasonably see the water if you were standing on the roof. But that’s another blog about misleading and deceptive contact in terms of advertising.
But for material facts, I think you’ve got the idea: a material fact is a fact had it been known beforehand- it may have changed the buyer or seller’s decision. So make sure you, as the agent, disclose material facts early. Unknowingly or knowingly, sometimes the agent can still be found liable, so agents must make a reasonable effort to find out about the material facts about a property because it’s so important to disclose these things at the right time. Then the buyer or seller can handle the facts and either accept them or reject them.
As the old saying goes: start how you finish. So start strong and finish strong! Do the right thing.
Be willing to lose personally because, as I said, it’s not the agents’ property. It is not their asset. That agent is acting on behalf of someone else. So if they lose a commission or a sale from it, that’s just the way it goes because that’s their legal obligation.
I believe if agents disclose material facts, the deals they will do will be better at the end of the day. Their clients and customers will be happier. Then their reviews will be outstanding. Over time, the agent’s reputation will be strong and substantial. They’ll do good business with people that trust them, and they’ll have a far better enjoyable long-term career in real estate.
So now you know more about what a material fact is in real estate and the agent’s responsibility to disclose them. You are acting in the client’s best interests, putting your interest last. You, as the agent, have a duty of care to your client (buyer or seller). So you must know what a material fact is. You must address those material facts. So do your research on a property, and know the property well. Finally, I encourage all readers to look at the real estate regulations and local guides for their state or territory and what is stated about material facts there.
Until next time 🙂