Interesting Dilemma -- When is a Material Fact Not a Material Fact?

Sometimes it's difficult to figure out whether an agent could be compromising his or her fiduciary relationship with a seller or violating the law regarding material facts. Real estate agents in CA are required to disclose material facts to a buyer. It doesn't matter whether the agent is a listing agent or a buyer's agent, all material facts must be disclosed.

A material fact is a matter that, if known by the buyer, would cause the buyer to pay less for the home or perhaps even walk away from the purchase; it's a matter that affects the transaction. Typically, if an agent has to question whether an issue qualifies as a material fact, the answer is yes, it is a material fact and should be disclosed. One way to look at this is to ask: "Would I want to know?"

On the other hand, if a seller discloses an item that is not a material fact and the agent passes along information to the buyer that causes the buyer to walk away, the agent could be violating her fiduciary relationship with the seller.

I had been working to sell a Midtown Sacramento listing for 16 months, 18 days and 7 hours, but who's counting. It was a difficult listing because the home needed extensive repair with much deferred maintenance. The acceptable offer threw the home into short sale status. I asked the seller to complete the transfer disclosure statement and other seller disclosures that are required by California law.

During the process, the seller decided that the TDS didn't provide enough room on the form to properly explain everything that he knew or didn't know about the home. He began to obsess over the disclosure. Finally, he decided to write his own addendum to the transfer disclosure statement. It was four pages long. He then emailed it to me and asked for my input.

Personally, I didn't believe he should have written Gone With the Wind and gone into such excruciatingly detailed depth when a simple "I don't know" would have sufficed. He hypothesized situations that could arise and propagated them. After I shared my thoughts with him, the seller said, "Don't send the addendum to the buyer. I'll cover those issues in the TDS."

The buyers were already freaking out over the home inspection report and thinking about canceling the transaction.

Before I tell you how I handled this situation, I'd like to hear from the real estate agents who read my blog. Tell me, what would you do? Is that addendum a material fact? If you gave such a document to the buyer and the buyer canceled, would the seller have a right to sue you?

The Short Sale, by Elizabeth Weintraub, coming from publisher Archer Ellison in January 2009.

Photo: Big Stock Photo