PERTINENT FACTS AND DEFECT - CODE vs. LAW

James L. Goldsmith, Esq.

Article II of the NAR Code of Ethics requires REALTORS® to disclose "pertinent facts to all parties." Pennsylvania law, on the other hand, does not require that all "pertinent" facts be disclosed by a listing agent. Certainly Pennsylvania law would require the disclosure of material defects not otherwise disclosed or obvious. But does it always require disclosure of a "pertinent" fact? Does this mean that a listing agent has to disclose every "pertinent" fact to a buyer, even if that buyer is represented by a buyer agent? What is "pertinent?"

Consider this hypothetical. A rural parcel of vacant land has no obvious ingress or egress. The listing agent decides it would be good to know whether a highway occupancy use permit can be acquired, so he arranges to meet a PennDOT representative at the property. The PennDOT employee opines that an application for a driveway permit would most likely be denied, though the possibility exists that if the speed limit is reduced and the driveway restricted to right turn only (from the lot) it may be possible to get the permit. The listing agent knows there is another way in and out of the property, though it is at a less favorable location.

Sometime later, a buyer agent introduces her clients to this property. Discussions lead to a written offer, accepted by the seller. The Standard Agreement of Sale clearly states (as you all know) that access to a public road may require the issuance of a PennDOT highway occupancy use permit. Unlike the listing agent, the buyer agent did not explore the necessity or likelihood of obtaining a permit.

After purchasing the property, the buyers contacted PennDOT to apply for a permit. They learned that the subject had already been broached by the listing agent who was told that the likelihood of obtaining a permit was very limited. The buyers were outraged that the listing agent knew of this potential problem but said nothing.

Under the facts of this hypothetical, did the listing agent: 1) violate Article II of the Code of Ethics by not revealing a "pertinent" fact; and 2) did the listing agent violate Pennsylvania law by failing to reveal a material defect or failing to abide by the Real Estate Disclosure Law? Because the property is vacant land, no seller disclosure form is required and because the property has adequate ingress and egress, the parcel is not landlocked. The inability to get a highway occupancy use permit at another location would not likely constitute a material defect. Should the listing agent be required under the Code or law to advise a represented buyer of conditions that may be less than ideal, but that do not rise to what would ordinarily be considered a defect? Isn't the exercise of due diligence a duty of the buyer and buyer agent?

We can't state what an Ethics Hearing Panel would do with these facts as these matters are reserved entirely for individual panels to decide. Nevertheless, and without further guidance, it would seem clear that a panel could determine that the listing agent's failure to reveal her prior discussions with the PennDot representative was a failure to reveal a "pertinent" fact. While NAR's Code of Ethics and Pennsylvania law have many parallels, this is one area of departure.

How and to what extent a listing agent must reveal "pertinent" facts to a represented buyer is not entirely known, but has to be analyzed on a case-by-case basis. Because the Code of Ethics is enforced by REALTORS®, members should have a general sense of the obligations of disclosure generally accepted in this industry. The nature of the "pertinent" fact is also critical. Difficulties with property access are vastly different from the difficulties from odors that accompany fertilization of a neighboring field!

Copyright © Brett M. Woodburn, Esquire, CALDWELL & KEARNS, P.C., 2008

All Rights Reserved

Jim Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends REALTORS® in disciplinary hearings conducted by the Real Estate Commission. He routinely counsels employers on employee relations issues and is one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.