As we continue to exam the new real estate statute that becomes effective January 1 we turn our attention to the definitions in §40-57-30. The requirement to disclose “material adverse facts” is referenced three separate times in §40-57-350. The three subsections require the agent to disclose “material adverse facts” to buyer and sellers regardless if the agent is acting with buyer agency, seller agency or transaction brokerage. The statute at §40-57-30(16) defines material adverse fact as “a condition or occurrence that is generally recognized as:
(i) significantly and adversely affecting the value of the real estate;
(ii) significantly reducing the structural integrity of improvements to real estate; or
(iii) presenting a significant health risk to occupants of the real estate.
The term also includes “information that indicates that a party to a transaction is not able to or does not intend to meet an obligation under a contract or agreement made concerning the transaction.”
In the current statute “material adverse fact” is not defined. Therefore, the Commission and courts apply the common law interpretation of the word and rely on case law, Websters or argument by counsel. Under this new statute specific matters are considered to be “material adverse facts.” As shown above, any fact that adversely affects value, structural integrity or is considered a health risk is a material adverse fact. Applying the current statute, however, a licensee would be required to disclose matters that adversely affects value, structural integrity or is health risk. The revised statute does not change the requirement. Rather, it makes it clear and without argument.
The revised statute does hold that information that a party does not intend to meet an obligation in the contract is a “material adverse fact”. This section is very concerning. Often times this will require an licensee to make a judgment call that maybe incorrect. Rarely will a client tell their agent that they do not intend to honor the contract. Secondly, at what point does the agent have information that their client does not intend to meet their obligations? Do they have to disclose based on suspicion, specific acts or based on the likely outcome of the client’s actions or inactions? Lastly, people are not the same and don’t act and react the same. What one person may believe is clear evidence that the consumer does not intend to act could be nothing more than the normal behavior of that person. If your client gets mad and says “I am not buying the house” does the agent have to disclose the statement to the seller or do you wait and see if the client was just voicing frustration? My fear is that this definition could lead to a grievance being filed against an agent every time a deal falls through. The opposing party is almost always going to claim the other agent knew and did not tell me.
Historical Fact: We are near the end of the inaugural season of Columbia Fireflies baseball which has set attendance records for our city. Professional baseball started in Columbia in 1892. The first team was named the Columbia Senators. Other team names include the Skyscrapers, Gamecocks, Comers, Sandlappers, Reds, Gems, Mets, Bombers and Fireflies. Don’t forget Blair Cato’s Real Estate Agent event on September 21 at the Home of the Fireflies, Spirit Communications Park.
Photo by torisan3500