Tuesday, March 23, 2021

Disclosure v. Confidentiality: A Real Estate Agent’s Conundrum

Robert Stetson

Home sales rose in 2020 to the highest level since before the Great Recession.  Given the sheer mass of transactions involving real estate agents and brokers, it is hardly surprising that home sale disputes

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abound and that many of these cases involve brokers and agents; often times, the perceived deep pocket in the situation.  But, generally, a broker is not liable for merely passing along information to a prospective buyer, seeFernandes v. Rodrigue, 38 Mass. App. Ct. 926 (1995) so, why do agents and brokers so frequently end up the targets of litigation?

One reason – at least in Massachusetts – is the dearth of seller’s disclosure forms.  As the National Association of Realtors recognized decades ago, seller’s disclosure forms provide cover for agents and brokers on a given transaction.  If the information contained on the form appears reasonable and accurate, the agent or broker owes no duty to inspect or investigate the information and can provide the form to a prospective buyer and avoid liability even for false information contained on the form. DeWolfe v. Hingham Ctr., Ltd., 464 Mass. 795, 800 (2013) (“While a broker ordinarily may rely on information provided by the seller in making representations about a property… the critical question is whether the broker ‘failed to exercise reasonable care or competence in obtaining or communicating the information.’”). 

However, Massachusetts is one of only four states in the United States that does not mandate sellers’ disclosures.  George Lefcoe, Property Condition Disclosure Forms: How the Real Estate Industry Eased the Transition from Caveat Emptor to ‘Seller Tell All’, 39 Real Prop. Prob. & Tr. J. 193, 250 (2004).  This lack of mandatory seller’s disclosures places brokers and agents in an awkward situation at the outset of any engagement.  Do they encourage their client to execute a disclosure form, or not?  The form would provide an additional layer of protection to the agent and broker, but unquestionably would increase their client’s risk of liability.  

Massachusetts laws and regulations create additional tension in the broker/agent and client relationship.  On the one hand, brokers and agents owe fiduciary obligations to their clients. See NRT New England, Inc. v. Moncure, 78 Mass. App. Ct. 397, 401 (2010).

confidentiality and nondisclosure on agents and brokers.  See 254 Code Mass. Reg. 3.00 (Professional Standards of Practice).

On the other hand, agents and brokers owe a competing duty to disclose material information to the opposing party in a transaction. 940 Code Mass. Reg. 3.16(2) states, as follows:  

Without limiting the scope of any other rule, regulation or statute, an act or practice is a violation of M.G.L. c.93A, § 2 if… (2) Any person or other legal entity subject to this act fails to disclose to a buyer or prospective buyer any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction…

940 CMR 3.16(2) applies to agents and brokers.  Tragakis v. Angilly, 2006 WL 2848128, 4 (Mass. Super. 2006) (“A real estate broker has a duty, under G.L.c. 93A, § 2(c) and 940 CMR 3.16(2), to disclose to a buyer or prospective buyer any fact which may influence him or her not to enter into the transaction”); see also Rousseau v. Gelinas, 24 Mass. App. Ct. 154, 158 (1987) applying c. 93a to real estate professionals).  Consequently, although agents and brokers owe their clients duties of confidentiality, they also owe duties of disclosure to the opposing parties in a transaction and can face liability, including double or treble damages under c. 93a, for failing to satisfy their disclosure duties in a given transaction. 

Especially in the residential home sales context, the competing duties of confidentiality and disclosure faced by agents and brokers is unfair and unreasonable.  But, caveat emptor is alive and well in Massachusetts.  Generally, sellers of a “private home” are not required to disclose material defects about their home.  See Sullivan v. Five Acres Realty Tr., 2020 WL 8837439 (Mass. 2020) (rejecting seller liability for latent defects created by sellers despite evidence that sale occurred in the course of sellers’ real estate “business plan”).  Therefore, until Massachusetts sellers owe comparable disclosure obligations – like in the vast majority of states in the country – agents and brokers will face an unnecessary conundrum: protect their client or protect themselves? 

Robert Stetson is a construction and real estate litigation partner at Bernkopf Goodman LLP.  He can be contacted via email at: rstetson@bg-llp.com.

This blog entry was adapted from a webinar titled “Advising your Referral Source: A Primer on Real Estate Broker/Agent Liability” and is available here.

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