I viewed a house, priced at $600,000. There was a bidding war. I loved it, but ultimately decided not to bid on it as I did not have my formal approval-in-principle letter from the bank — and the real-estate agent told me, “We trade on our integrity.” I didn’t want to make an offer when I didn’t have my finances in place, and I would have hated to have had an offer accepted and then something to go wrong at the last minute with the bank-approval process.
Subsequently, I discovered a friend lived on the same street so I messaged her to say, “We were almost neighbors. I nearly bought that house for sale.” She wrote back, “OMG! I’m so glad you didn’t. The next-door neighbor was going to buy it, but the seller warned him off because the kitchen extension was built without foundations and it’s quite unsafe.” I felt like I dodged a bullet, but I also wonder what I should do with this information.
Do I have a moral obligation to the real-estate agent, so they can alert the buyer? Or do I stay silent and move on and assume the buyer will hire a surveyor to do a thorough job on the house? And does the real-estate agent have a moral duty to inform the buyer that there may be a problem with the extension, or is that a breach of her responsibility to the seller, her client? Does that “integrity” only extend as far as her client?
House Hunter
Dear House Hunter,
You have two moral questions: one for you and one for the real-estate agent.
Let’s deal with the real-estate agent first because it’s both a legal and moral question. Morally, it would be wrong for the agent and owner to sell a property to a buyer knowing that they would face extensive costs to fix a problem as serious as this. So, yes, her integrity and her legal obligations extend to both her client and buyer. Legally, much like the extension in the house, the agent and seller are on shaky ground if they both know about the problem.
If the previous owner spotted cracks in the wall, they could have covered them with plaster and paint, and hoped that the buyer’s surveyor did not discover the foundation issues. A surveyor would have to do some investigative work to find out that there were issues with the foundation on the extension. Absent odd shapes or movement of the floor, walls or doorframes, they’d have to dig a hole at the side of the house. A structural engineer could cost $1,000.
Failure to disclose this structural issue also opens the real-estate agent open to legal action. “Former property owners and sometimes even real estate agents can be held responsible for failure to disclose defects that exist in a home,” according to Lloyd Winter, a law firm with offices in Texas and California. “Sometimes, the misrepresentation is innocent. Often, it’s negligent. Other times, failure to disclose defects is completely deliberate.”
While the role of the real-estate agent and seller in this saga are more clear-cut from a legal and moral perspective, you occupy a slightly higher, if muddier, ground.
“When sellers or listing agents show a reckless disregard for the truth in a real-estate transaction, the new property owner may have a very good misrepresentation claim,” the law firm adds. “Listing agents are supposed to have the seller disclose all material defects with the home and property to the home buyer. Across the country, statutes and court decisions make it clear that real-estate sellers should inform buyers of certain defects prior to closing.”
And if they don’t? Roll on the legal action. “Typical disclosure forms will ask about the condition of various important features of a home,” it adds. “They may also ask about issues like pests, environmental hazards, mold, ongoing property disputes, and more. While a seller isn’t required to proactively look for potential problems with the home they are selling, they shouldn’t actively cover known problems up without disclosing those problems either.”
While the role of the real-estate agent and seller in this saga are more clear-cut from a legal and moral perspective, you occupy a slightly higher, if muddier, ground. If your friend told you in confidence, you will have to weigh up breaking their confidence with the potential harm to the buyer. You could always tell the agent anonymously, but you risk losing the friendship of the neighbor who put you in this “whistleblower” spot in the first place.
You are not involved in the sale process. You viewed the property, wanted to bid on it and got lucky when you had to back out, only to accidentally discover that there was a problem. Unlike the real-estate agent and seller, you don’t stand to benefit from this financial, structural, legal and ethical moral quagmire — unless you see a situation where the buyer backs out, the seller reduces the price, fixes the problem and an interested party (you) steps back into the picture?
By all means, tell the real-estate agent what you know — and walk away.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
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