Case #1-25: Disclosure of Latent Defects
(Adopted November, 2000. Revised November, 2022.)
REALTOR® A listed Seller S’s home. Buyer B made a purchase offer that was contingent on a home inspection. The home inspection disclosed that the gas furnace needed replacement because unacceptable levels of carbon monoxide were being emitted.
Based on the home inspector’s report, Buyer B chose not to proceed with the purchase.
REALTOR® A told Seller S that the condition of the furnace and the risk that it posed to the home’s inhabitants would need to be disclosed to other potential purchasers. Seller S disagreed and instructed REALTOR® A not to say anything about the furnace to other potential purchasers. REALTOR® A replied that was an instruction he could not follow so REALTOR® A and Seller S terminated the listing agreement.
Three months later, REALTOR® A noticed that Seller S’s home was back on the market, this time listed with REALTOR® Z. His curiosity piqued, REALTOR® A phoned REALTOR® Z and asked whether there was a new furnace in the home. “Why no,” said REALTOR® Z. “Why do you ask?” REALTOR® A told REALTOR® Z about the home inspector’s earlier findings and suggested that REALTOR® Z check with the seller to see if repairs had been made.
When REALTOR® Z raised the question with Seller S, Seller S was irate. “That’s none of his business,” said Seller S who became even angrier when REALTOR® Z advised him that potential purchasers would have to be told about the condition of the furnace since it posed a serious potential health risk.
Seller S filed an ethics complaint against REALTOR® A alleging that the physical condition of his property was confidential; that REALTOR® A had an ongoing duty to respect confidential information gained in the course of their relationship; and that REALTOR® A had breached Seller S’s confidence by sharing information about the furnace with REALTOR® Z.
The Hearing Panel disagreed with Seller S’s contentions. It noted that while REALTORS® do, in fact, have an obligation to preserve confidential information gained in the course of any relationship with the client, Standard of Practice 1-9 specifically provides that latent material defects are not considered “confidential information” under the Code of Ethics. Consequently, REALTOR® A’s disclosure did not violate Article 1 of the Code of Ethics.
Source: The National Association of REALTORS® Code of Ethics and Arbitration Manual. Case Interpretations, October 2023. https://www.nar.realtor/code-of-ethics-and-arbitration-manual/case-interpretations-related-to-article-1