Definition of a Material Fact in Real Estate
A material fact in real estate is defined as a fact that, if known, might have caused a buyer or seller of real estate to make a different decision with regards to remaining in a contract, or to the price paid or received. Both residential and commercial properties can be impacted by material fact disclosure requirements.
Facts Vary by State
Most laws require that the real estate agent discloses known material facts. So, if an agent had shown a home in the past that had water damage at the time, even if it wasn't there later, they should disclose it to other potential buyers. Wouldn't you possibly reconsider the price offered or staying in the deal if you found out about significant water damage?
What does and does not constitute a material fact varies by state. Working with a trained and licensed realter or broker in your area will help you avoid most costly mistakes of non-disclosure of material facts.
Home Condition and Repair Issues
In almost every case, any known defects in the structure must be disclosed as material facts. Obviously, a potential buyer would either change their mind or their price offer if they find out about an issue with the roof or the foundation. One real-life example clearly illustrates the legal concept. A real estate agent who worked primarily as a buyer agent showed a home to a potential buyer. They made another purchase decision, partly because of the large crack uncovered when an area rug was moved.
They picked up the corner of the rug and found a huge foundation crack across much of the main room floor.
Murder or Death in the Home
You may see this category listed as an emotional defect with the home in some states. It includes murders, deaths, and other violent crimes that may have happened on the property. Check with your state, because there may be limitations on timeframes and deaths by natural causes or suicide.
Pennsylvania had a court decision precedent that a prior murder in the home is not a material fact and does not need to be disclosed. Again, that's just one state, and you really need to be sure that you know what the law is in your state if you have knowledge of murder in the home in the past.
A case in California ruled for a buyer not told of murders in a home he bought. Sometimes even a violent death not ruled a murder may need to be disclosed. An example would be a self-defense shooting of a home intruder inside the home.
Case of the Haunted House
Following on the heels of death in the home category comes the paranormal activity in the home category. In most states, stories of ghosts and haunting are not considered a material fact. Perhaps you live in an area where there was an ancient burial site or maybe you have set aside a portion of the back yard for your beloved pets who passed. You can't be sure what should be disclosed without research, and sometimes it is best to just go ahead and make the disclosure.
Animals As Material Fact
In some states, the seller must disclose if a house has problems from animals or pests. As an example, Texas requires the disclosure of bee swarms, scorpions, and rabid animals. However, it is not just animal issues like this that you have to consider when you sell your home. Animal issues may extend to the bad dog of a neighbor, or one who raises chickens, or even the rules of the local homeowners association.
As an example, the brokerage in a case in Iowa had to pay damages for not making proper disclosure to buyers of the fact that there was an HOA restriction to one dog per residence. The buyers found out and killed the deal. Seasonal issues caused the home to stay on the market for a while and sell for less than the initial buyers offered. In this case, the brokerage was representing both sides, so was in a position to control information from seller to buyer side.
Realtors and Material Fact
Real estate agents and their brokers are in dangerous territory if they fail to disclose something they know, even if they thought they didn't need to do so. A good rule to follow is that if you're wondering if you should, just go ahead and disclose to avoid lawsuits later.
For agents and brokers who practice exclusive buyer agency, it's a lot easier. They only represent buyers, and it's easy to keep their best interests at the top of the list.