If you decide to sell your New York house, you might either try to sell it on your own or work with a real estate broker. If you deal with a broker, you’ll get to know them well and they’ll learn a lot about the property. This begs the question of how much information about your property should and can be disclosed to potential purchasers by your realtor. That query will be investigated in this essay. A little background first. When you hire the broker, they will ask you to sign a contract giving them and one or more of their sales agents permission to list the property for sale at a specific price (the “asking price”) and outlining the fee structure.
The contract also gives the broker and salesperson permission to list the property with a multiple listing service (an electronic database of information about properties offered for sale, often called the MLS). The broker and sales representatives are referred to as the “listing broker” and the contract is known as the “listing agreement.”
The listing broker will assist you in setting the asking price, liaising with potential purchasers and their brokers (known as buyers’ brokers), and generally assisting you with the contracting, inspection, and closing processes. In order to carry out these duties, the listing broker frequently receives thorough information on the property through appraisals, inspection reports, and surveys and gets to know the property’s condition.
In order to identify houses and serve as a guide during the purchasing process, a potential buyer may also hire a broker. The buyer will frequently query both brokers about the property’s condition—specifically, whether it has any recognized flaws—during the search for a property, the inspection, and the contract negotiations.
Does one or both of the brokers have an obligation to disclose known flaws to the buyer or take steps to find and report defects? Let’s take a closer look at what the selling broker and the buyer’s broker are required to learn about the property and reveal it to the buyer.
Background on New York Listing Broker’s Limited Duty to Disclose
The long-standing practice of New York courts to treat real estate transactions under the “caveat emptor” or “let the buyer beware” rule is evolving. Caveat emptor states that it is the buyer’s responsibility to check the property for flaws before making a purchase, and that listing brokers are generally not obligated to provide information regarding flaws in the property.
However, New York’s legal system has historically included exceptions. However, only if the misinformation or omitted information was crucial to the buyer’s decision to buy the property and the buyer relied on the listing broker’s statements when making the final purchase decision. If the listing broker passed information about the property from the seller to the buyer that the broker actually knew was false, or if the listing broker omitted material facts about known defects, the broker may be liable to the buyer for damages. The buyer could not assert reliance on the broker’s statements if the buyer’s inspection turned up any information that would have identified property issues.
The “caveat emptor” principle as it relates to brokers has been softened by more recent court decisions. The New York legislature also introduced some disclosure requirements to the legislation governing real estate broker licensure (in 2002), and further disclosure requirements were added with the enactment of the Property Condition Disclosure Act (the PCDA). (N.Y. Real Prop. Law § § 460-467.)
New York Listing Brokers’ Disclosure Requirements Under the PCDA
Prior to the buyer signing the real estate purchase contract, the listing broker is required to inform the seller of the PCDA’s disclosure requirements. Although it is not required by law, the listing broker normally gives the seller a blank disclosure statement form to fill up. If the buyer is not represented by a broker, the listing broker must also inform the buyer about the PCDA. A listing broker who completes these tasks on time won’t be held responsible for any PCDA infractions.
What New York Listing Brokers Must, and May Not, Disclose to Buyers
New York real estate brokers and agents who engage in fraud or fraudulent practices or dishonest or misleading advertising face fines or revocation or suspension of their license. This comes from Article 12-A of the Real Property Law. (N.Y. Real Prop. Law §§ 440-443) as administered through the Department of State Division of Licensing. (N.Y. Real Prop. Law § 441-C).
According to the legislation, a broker is not typically obligated to check the property to find flaws or to independently confirm the seller’s assertions about it before relaying those details to the buyer. However, the broker is required to properly disclose any pertinent facts to the buyer or the buyer’s broker if the broker is aware of a serious fault or believes that the seller has misrepresented the property’s condition. (N.Y. Real Prop. Law § 443.)
Additionally, the broker must confirm any assertions made by the seller that are included in any marketing or advertising materials for the property.
The New York legislature changed the legislation governing broker licenses in 1995 to relieve brokers of any disclosure obligations in order to end a growing problem with what was referred to as “stigmatized properties”
- that a previous owner or occupant of the property had or was suspected of having, HIV, AIDS, or other unspecified diseases unlikely to be easily transmittable through occupancy of a dwelling place, or
- that the property was the site of a felony such as a homicide, a suicide, or another death.
This means that buyers can’t sue brokers who fail to disclose the excluded matters; nor can the brokers face discipline over such acts. (N.Y. Real Prop. Law § 443-A.)
However, the buyer may make a written inquiry to the seller’s agent, or directly to the seller, for this information
Disclosure Obligations in a Dual Agency Arrangement
A brokerage company frequently represents both buyers and sellers. The broker may act as both the seller’s and the buyer’s agent (known as a dual agent) if the buyer requests to view a property the broker has advertised for a seller. However, there is a drawback to representing both the buyer and the seller: a dual agent cannot uphold the same degree of commitment and discretion to either. The “caveat emptor” rule will not be in effect, and the listing broker will inform the buyer of all material information on the property.
The New York legislature approved a stringent broker-relationship disclosure law to guarantee that the unique relationship of the dual agency is explained to both parties. Legally, the dual agent must provide a disclosure document to each party and have their approval before entering into the arrangement.
The disclosure form’s content, known as the Disclosure Regarding Real Estate Agency Relationships, is prescribed by law and outlines the obligations owed by the dual agent to each party as well as any potential conflicts of interest. (N.Y. Real Prop. Law § 443-A.)
New York Buyer’s Broker Disclosure Requirements
A New York buyer’s broker is just the buyer’s representative, protecting the buyer’s interests alone, unlike a listing broker or a dual agent. The buyer’s broker owes the buyer undivided allegiance and is required to give the buyer a full disclosure of all information known about the property. A buyer’s broker is not, however, compelled to conduct their own independent inspection of the property to discover any flaws. It is still the buyer’s responsibility to engage inspectors and conduct the necessary research on the property.
Consult a knowledgeable real estate attorney for further information on the disclosure obligations for real estate brokers in New York.