Duties Pertaining to Public Information
Is a real estate broker obligated to disclose matters of public record to potential buyers? Check out this real-world scenario to find out.
SITUATION
A real estate broker has listed a single‑family residence adjacent to commercial property consisting of a small, one-story office/garage space. The commercial property has had limited use for years and has not been disruptive to the next-door residence.
A local developer submits plans for a variance and permit to demolish the small office and build a four-story apartment building with a lot-line-to-lot-line footprint. Certainly, this new, larger building with multiple tenants will impact the use and enjoyment of the adjacent residential property.
Are the listing and cooperating brokers required to disclose the neighboring developer's plans and proposals for the new project, all of which are a matter of public record and equally accessible to anyone? The answer is typically no, but it also depends.
CONSIDERATIONS
Generally, a real estate broker is not obligated to disclose matters of public record, as anyone is capable of independently verifying this information. Public records are not considered within a real estate broker's knowledge only and, therefore, are not capable of being misrepresented.
As such, courts throughout the United States have generally held that misrepresentations of public record are not actionable. Case law reflects, for example, that a village ordinance requiring property owners to connect their property to the public sewage system at their own expense by a certain date is a matter of public knowledge and cannot be misrepresented or omitted by the listing real estate broker for the alleged failure to disclose the sewer hookup requirement. In this example, the court found that a simple review of the applicable village ordinance would have put the purchasers on notice that the hookup was required and, therefore, any alleged omission by the real estate broker was not actionable. Such an omission is deemed to be an omission of law readily discoverable by the purchasers, not an omission of material fact which can expose real estate brokers.
In the factual example above, a developer’s application for a building permit, variance, or other approvals establishing the scope and scale of the construction project is also something that is publicly available for review and comment and accessible to a prospective purchaser of residential property. Moreover, when petitioning a local jurisdiction or building department for permits, public meetings are typically held which can be attended by anyone, and notes and meeting minutes are made available to enable one to ascertain the nature, scope, and approval of the development of real property.
Failing to look up or research public information is not a valid excuse by a buyer or plaintiff and undermines allegations of reliance on what a real estate broker purportedly did or did not say about the neighboring project.
PROBLEM
In some cases, a real estate broker could have an obligation to disclose matters of public record. If, for example, the broker has intimate knowledge of the neighboring development or construction, worked with the developer or other parties involved, or failed to disclose facts about the neighboring project which are not ascertainable in the public record, then they may have a level of culpability. In this instance, a listing broker will have difficulty getting dismissed from the case based on a public record argument.
RESULT
Aggrieved purchasers often try to overcome the standard rule that a real estate broker cannot misrepresent that which is in the public record (and equally available to all) by alleging the broker has vast experience or expertise and understands the market better than a layman purchaser. These claims are typically buttressed by using examples of the broker’s website and marketing materials indicating the broker’s roots, experience, and quality. Moreover, states have licensing statutes that require brokers to treat all customers honestly and to candidly provide information, regardless of whether they are clients.
Another argument is that a real estate broker has an obligation to understand and disclose adverse conditions of adjacent properties or even perhaps the broader neighborhood. However, most states do not impose liability on real estate brokers for the failure to disclose deficiencies in areas outside of the listed property, despite their experience and knowledge of the town or neighborhood.
Specialized knowledge in a particular market should not expand the scope of exposure or legal duty a real estate broker may have. Even with apparent expertise in the area or neighborhood, the public record defense should be equally applicable to protect a real estate broker. Again, the reason is that any representation could be verified through review of the public record by any prospective purchaser. Facts pertaining to the physical condition of the property must be revealed if they are materially adverse, but courts are less likely to impose a duty to disclose facts outside the four corners of the property at issue.
PREVENTION
Despite these protections, it's important to proactively address any potential claims pertaining to a developer’s actions on neighboring property which were vetted and approved by local government agencies. One approach is to encourage any potential buyer to investigate all public information pertaining to adjacent or neighboring properties. If necessary, remind them the building department, recorder’s office, and city hall may have information pertaining to the subject and neighboring property. In addition, let them know this information is accessible to the public and, particularly to them, if they choose to investigate.
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The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.