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Disclose, Disclose, Disclose (RE04RC12)

How much disclosure is too much disclosure? Correct…there is never too much disclosure unless it’s confidential information that shouldn’t be disclosed, but of course often is. Massachusetts law is specific about what can and cannot be disclosed in the real estate transaction-or what could be disclosed based upon your agency relationship. But as with all laws-the application is the key. So this course will walk you through the application of those rules in your everyday working environment. See course outline

Course Outline

At the end of this course, the student will be able to:

  • Identify issues that cause the greatest source of disclosure problems
  • List three ways to approach risk reduction of disclosure issues.
  • Explain some of the top individual problems that have had increased complaints by consumers.
  • Describe measures that various Associations of Realtors® have taken to protect the consumer and help the Realtor reduce risk from non-disclosure.
  • Explain the importance of a Company Policy and Procedures Manual.
  • List disclosure forms to be included in the manual.
  • Describe the types of insurance that a Realtor® should consider.

Disclose, Disclose, Disclose: How much disclosure is too much?

Frank Cook, the infamous editor of Real Estate Intelligence Report, was a keynote speaker at the annual Real Estate Educators Association Conference in Philadelphia this past June. His topic was “If your neighbor is mowing his yard in the nude, how much disclosure is too much disclosure?” Now for those of you who know and appreciate Frank Cook, as I do, you know that he got right to the meat of the matter. How much disclosure is too much disclosure? My estimation is that, on occasion, the more disclosure given by the real estate professional, the more liability incurred. Let’s take a look at the most significant issues facing the real estate industry today regarding “disclosures” and examine how you can shift those risks either to other professionals or the consumer themselves. The motto for this year should be “Risk Reduction….not Risk Management”!!

Group Discussion: What is your biggest concern regarding disclosures today?

    1. According to the NAR Legal Scan of 2003 there are very clear disclosure issues that should be a concern to any real estate professional and especially to real estate brokerage companies. The concerns come from the list of cases which indicate an increase in a disclosure problem in the past two years or from a survey of real estate commissions and professionals who report a moderate or higher level of current disputes based on individual problems.
      • Increases in legal cases from 2001-2003 show the following disclosures to be of great significance.


Issue Number of Cases __ % Liability
Dual Agency 20 22%
Buyer Representation 21 36%
Breach of Fiduciary Duties 54 33%
General agency issues 29 38%
Disclosure of structural defects 27 27%
Disclosure of boundaries issues 12
Disclosure of off-site adverse conditions 10
Disclosure of environmental issues 7
Fair Housing: Race discrimination 67 39%
Fair Housing: Sex discrimination 9 50%
Fair Housing: Familial Status discrimination 18 40%
Fair Housing: Handicap discrimination 74 29%
Fair Housing: Other 36 17%
Anti-trust 15 50%
RESPA: Disclosure of Settlement Costs 9 0%
RESPA: Kickbacks 45 18%
RESPA: Other 16 0%
Third Party Liabilities: Appraisers 4 50%
Third-party Liability: Inspector 23 39%
Third-party Liability: Other 9 0%
Management: Tenant’s Property Condition 256 43%
Management: Common Areas 172 47%
Management: Events on the property 55 29%
Management: Eviction 208
Management: Fair Housing 63 33%
Management: Section 8 83 26%
Management: Other 372 51%
As Is Clauses 67 40%
As Is Clauses 8 0%
Commission Disputes 144
Frivolous Lawsuits 27 50%
Licensing 20 67%
Breach of Contract 17 30%
Miscellaneous 58 44%

(This information was taken from the NAR legal scan which can be found on the www. Realtor.org web site.)

      • No wonder there has been an “evaporation” of real estate brokerage companies in the United States. Who wants to be in business today and carry the possibilities of these kinds of liabilities? Keep in mind, that these are the cases that went to court…..consider the number of cases that were settled outside of the court system of which we have no records.
      • There are three ways to approach risk reduction of disclosure issues.
        • Anticipate the problem
        • Control the situation
        • Shift the risk to other professionals
    1. Real Estate Commissions monitor the complaints brought against licensees. Over the past two years they note that the following are the top 8 individual problems that have had an increase in the number of complaints filed.
      • Disclosure of Mold
      • Technology issues especially regarding new forms of advertising…website advertising of property is a prime example.
      • Licensing issues
      • Disclosure of structural defects
      • Third Party Liability in working with appraisers
      • Third Party Liability in working with inspectors
      • RESPA violations regarding affiliated business arrangements
    2. How is the real estate industry today facing the challenges of reducing the liability incurred by failure to disclose or appropriately handle these major issues?
      • According to a survey by the Washington Association of REALTORS indicated that 52% of its members reported their clients had trouble acquiring affordable insurance, causing delays in the transaction. Therefore a task force was appointed to study the issue. As a result of the task force, a recent addendum to the real estate transaction form has been inserted. It includes information for homebuyers about what insurance companies look for and an optional contingency that ties the purchase agreement to the buyer’s ability to secure affordable insurance in a reasonable amount of time. The addendum also encourages buyers to apply for insurance earlier in the transaction, according to Steve Francks, WAR’s executive vice president.
      • Arizona has taken the “tiger by the tail”. A new Buyer Advisory was put into affect in June, 2003. The credit for this incredible disclosure/advisory is credited to the members of the Commissioner’s Disclosure Law Instructor Development Workshop Committee. The goal of the document is to raise the awareness of buyers and to stimulate buyers to be active in checking things out that may be important to them. You can get a copy of the document by gong to www.aaronline.com/documents/buyer_advisory.aspx The addendum to the buy-sell agreement will require the seller to produce a five year insurance claims history on the property, which they can obtain for free from their insurer, or a copy of the property’s CLUE report, which is essentially a five year claims history, which you can purchase from www.choicetrust.com. The addendum also obligates the buyers to contact their insurance agent as soon as they enter into a contract and to investigate insurance availability during the inspection period.
      • Many State Associations and local boards along with State Real Estate Commissions have developed a myriad of forms for the use of their licensees and REALTOR members. The problem is that many of the members forget that the forms are there for their use. Other states have 3-4 mandatory forms for agency disclosures and that’s it.
      • The NAR Business Issues Committee is today dealing with the Insurance Issues in the real estate industry.
      • Inspectors and Inspection companies are also managing their risks by informing buyers that they are not able to find every little evidence of mold in a short 2 hour (approx) inspection, and the buyer needs to hire a mold inspector if indeed that is of concern to them.
    3. Brokers should check with their individual legal counsel…those who would be the one to represent you, if needed. The brokerage companies need to take a proactive stand to control their risks. The following are some suggestions as to how a broker/brokerage company can begin to implement a risk reduction program.
      • A Company Policy and Procedures Manual is a MUST! A list of the disclosures required to be made in the transaction should be included in the manual. The manual needs to be a “living, breathing document”…always changing to meet the needs of the industry. As the policy changes the broker needs to get a new “signature” from the agent acknowledging the change in the manual. Often times it is best to not “bind” your manual but to instead use a loose leaf notebook that can easily have new pages inserted in order to make the necessary changes.
      • If your state does not supply you with forms to manage your risk, consider developing your own forms with attorney review. Read through your state’s license law and count the number of times it says “the licensee must disclose in writing”. Samples of those forms that meet the needs of the brokerage company to protect them from the liability issues stated in I. above might include:
        • Extensive Agency Disclosures
        • Commission Agreements between brokers and For Sale By Owners
        • Acknowledgement form for the transaction file stating all parties have received copies of all of the forms in the file
        • Inspection disclosure form
        • Pre-closing inspection check lists
        • Confidential information release form for buyers and sellers
        • Conflict of interest agreement/RESPA Kickback
        • Consumer disclosure to buyer
        • Mold and other environmental issues disclosures
        • Fair Housing Disclosure
    4. Insuring against risks is important. You can certainly do all you can to control risk by training your agents, developing risk reduction forms, and monitoring every transaction to guard against errors. However, it is not possible to catch everything. That’s where insurance comes in. Proper insurance will help defray the cost of defending your company against lawsuits and, in most cases, will pay for all or most of the cost of judgments against you. The following are types of insurance every real estate company might consider having.
      • General liability insurance protects against claims for injuries on the company’s premises or those injuries caused by company personnel off the premises.
      • Professional liability/errors and omissions insurance protects against claims resulting from mistakes or negligence in the every day conduct of the real estate professional.
      • Fidelity insurance or fidelity bond reimburses a company for loss of money or property due to actions of a dishonest worker.
      • Property insurance protects against losses arising from physical damage to the insured property or from theft.
      • Business interruption insurance covers losses arising from business interruptions and lost profits while a damaged property is being repaired…ie. the recent hurricane damages to real estate companies in Virginia.
      • Directors and Officers liability insurance protects director or officers of a company from suits brought against them for wrongful acts that could damage the company, such as antitrust violations.
      • Worker’s comp insurance protects employees when they are injured on the job.
      • Automobile insurance covers liability for both physical injuries to others and damages to vehicles. Be certain that all sales associates carry comprehensive auto insurance.

Go to insure.com to explore business related insurance issues.

  1. Disclose, disclose, disclose….the three most important words in real estate today. Are you disclosing everything that you possibly can in a risk reduced fashion and do your agents truly understand the liability of trying to become an expert….when they are not? The real key to broker’s risk reduction is making sure your agents are trained to report any conflict to the broker immediately.

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