Entry 2304.5 - Material Facts & Brokers Fiduciary Duties

Material Facts & Brokers Fiduciary Duties

IThe NC Real Estate Commission has received a significant increase in the number of

consumer complaints related to misrepresentation and omissions of material facts over the

last several years. One of the main statutes the NCREC utilizes when regulating brokerage

activity is §93A-6(a)(1), (2), (3) and (8). These statutes authorize the NCREC to reprimand,

suspend or revoke the license of any broker who willfully or negligently misrepresents or

omits a material fact, makes a false promise related to a transaction or is found to be

unworthy or incompetent to act as a real estate broker in a manner as to endanger the

consuming public.

One of the most difficult concepts of many brokers to grasp is that of “Material Facts”. The

challenge for most is defining the term. The concept is somewhat vague and complicated in

that a given fact may be “material” and requires disclosure in one transaction, but not

another.

A “Material Fact” is any fact of substance relating to a sale or rental transaction that might

affect a prospect’s decision to buy, sell or rent, therefore requiring disclosure. Brokers have

an affirmative duty to discover and disclose all material facts to all parties in a transaction

and must avoid misrepresentation or omission of material facts. A misrepresentation is a

false or misleading statement, made orally or in writing, or by providing documents known to

contain errors or misleading information. An omission is the withholding of material

information.

When a misrepresentation is willful it is deliberate and intentionally misleading. Negligent

misrepresentation is unintentional because of lack of knowledge, or not knowingly providing

incomplete or inaccurate information. Conversely, willful omission occurs when a broker has

actual knowledge of a material fact, but deliberately fails to disclose such a fact. Negligent

omission occurs when a broker doesn’t have actual material fact knowledge and

consequently does not disclose the fact but should have reasonably known such a fact.

The “Reasonable and Prudent Broker Standard” always applies and generally states that a

reasonable and prudent broker should be familiar with the type of brokerage transaction

contemplated. If a transaction is outside your area of expertise, then partner with a broker

who is familiar with that type of transaction or refer the transaction to a competent broker

who is familiar with that type or location of the contemplated brokerage transaction. Brokers have an affirmative duty to discover and disclose all material facts to all parties in a

transaction, even if your client instructs you not to disclose. Don’t be an incompetent Broker.

There is never a problem of over-disclosing a material fact about the transaction.

The above does not constitute Legal Advice. Therefore, find a competent attorney for legal advice.