Prior to January 2017 real estate agents could be sued when they “knew or should have known” of a hidden defect, misrepresentation, fraud or incorrect statement. While few would argue against liability for actual knowledge, real estate agents often had to defend against the innocuous claim of “should have known.” Playing “Monday Morning Quarterback” is always easier after the event. How often have you heard a football fan say, “If the coach would have called this or that play the outcome would have been different?” However, in real time the situation may not have pointed in that direction.
Through the new real estate law the state legislature attempted to eliminate the “should have known” standard as to real estate agents.
In the previous statute it read:
A licensee who represents a seller shall treat all prospective buyers honestly and may not knowingly give them false or misleading information about the condition of the property which is known to the licensee or, when acting in a reasonable manner, should have been known to the licensee. [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][Emphasis added]. SC Code §40-57-137(F).
(D)isclosing to the seller all relevant facts concerning the transaction which are actually known to the licensee or, if acting in a reasonable manner, should have been known to the licensee, except as directed otherwise in this section. [Emphasis added]. §40-57-137(C)(2)(c).
In 2017, the language was replaced with:
A licensee shall treat all parties honestly and may not knowingly give them false or misleading information about the condition of the property which is known to the licensee. A licensee is not obligated to discover latent defects or to advise parties on matters outside the scope of the licensee’s real estate expertise. Notwithstanding another provision of law, no cause of action may be brought against a licensee who has truthfully disclosed to a buyer a known material defect. [Emphasis added]. §40-57-350(G)(1).
A licensee, the real estate brokerage firm, and the broker-in-charge are not liable to a party for providing the party with false or misleading information if that information was provided to the licensee by the client or customer and the licensee did not know the information was false or incomplete. [Emphasis added]. §40-57-350(G)(3).
There may be no imputation of knowledge or information between and among the broker-in-charge, agents, and the clients. [Emphasis added]. §40-57-350(I)(9).
The new language eliminated the “should have known” standard. Actual knowledge is a much higher and harder standard to prove. At trial the judge will instruct a jury of the burden of proving the higher standard. So in a legal sense the real estate agent should have more protection and less liability.
However, as a practical matter this higher standard will not make a real estate agent immune to lawsuits. Instead of pleading that the agent knew or should have known, a Plaintiff’s attorney will plead that the agent knew and assert facts as proof of actual knowledge. Whether the agent knew or did not know of the assertion is a matter of fact, the court will rarely grant summary judgment so ultimately the jury will decide if the agent knew. Therefore, while the standard of proof is heightened it is unlikely to reduce the number of lawsuits.
See Gary Pickren speak February 16, 2017 at 11:30 am at the Central Carolina REALTORS® Association luncheon. Gary will discuss the changes to the CCRA Contract that became effective January 1, 2017.