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What to do when your client tells you not to disclose something in real estate

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Discover how to navigate the delicate situation of client confidentiality in the real estate industry. Learn the appropriate steps to take when faced with disclosing or withholding information as a real estate professional in the US.

In the realm of real estate, honesty and transparency are essential for building trust with clients. However, there may be instances when a client instructs you to withhold certain information from potential buyers or tenants. This can put real estate professionals in a challenging position, as they must balance their duty to the client with ethical responsibilities and legal obligations. In this article, we will explore what to do when your client tells you not to disclose something in real estate, ensuring you navigate this situation with professionalism and integrity.

#1 Understanding the Importance of Disclosure

Before diving into how to handle non-disclosure requests, it's crucial to grasp why disclosure is highly valued in the real estate industry. Transparency is key to fostering trust between buyers, sellers, and agents, ensuring all parties have the necessary information to make informed decisions. Disclosing pertinent details about a property protects everyone involved from potential legal issues and future disputes.

#2 Know Your Legal Obligations

Real estate professionals must be familiar

The seller, seller's agent, and buyer's agents have duties to disclose material defects to the buyer. The seller must disclose all known and openly obvious defects, or else they risk the sales contract being rescinded (i.e., voided) and being held liable for the buyer's consequential damages.

What is an example of failure to disclose?

For example, failure to disclose pest infestation that happened in the past in the area where the property is located.

What are the consequences of failure to disclose?

The failure to disclose known defects or issues that affect the “value or desirability” of the property can result in substantial liability to seller and their agent(s), and often result in litigation.

What are examples of misrepresentation in real estate?

What are some examples of misrepresentation in real estate? One example of misrepresentation in real estate is marketing a rental property as new, despite its being occupied for years. Another example is selling a piece of property with an undiscovered defect, e.g. a leaking roof.

What is the right to not disclose information?

Under the Privacy Act's disclosure provision, agencies generally are prohibited from disclosing records by any means of communication – written, oral, electronic, or mechanical – without the written consent of the individual, subject to twelve exceptions.

Why do short sales get denied?

Just because a seller accepts a short sale price doesn't mean that the lender will, and the list price may be far below what the lender wants. Banks may reject offers when the price is low, the seller or buyer doesn't qualify, the application is incomplete, or the loan has already been sold.

How long does it take to recover from a short sale?

As with other major derogatory events, it can take a long time for your credit scores to recover from a short sale. It may be several years before your score fully recovers if you previously had a good credit score. Or, you may have to wait the full seven years if you had an excellent score.

Frequently Asked Questions

What are three cons of short selling?

Short selling comes with numerous risks:
  • Potentially limitless losses: When you buy shares of stock (take a long position), your downside is limited to 100% of the money you invested. But when you short a stock, its price can keep rising.
  • A sudden change in fees.
  • Dividend Payments.
  • Margin calls.

Who is required to disclose all known material facts to a prospective buyer?

In California, the seller of a residence has both a common law and statutory duty of disclosure to the buyer, and even full compliance with the statutory duty does not excuse the common law duty. 1 Miller & Starr, California Real Estate (3d ed. 2005) § 1:140.

Which of the following parties is required to disclose any known material defects with a property?

- The principal broker and the salesperson are responsible for properly disclosing any defects in the property to the buyer. By providing the disclosure form in a timely manner, the salesperson is protecting the liability of his broker. A) should tell the buyers that the home is under contract with another buyer.

What should a buyer's broker disclose to the seller?

Real estate professionals that represent buyers must find out from their clients any known hazards or defects on the property and other factors that could affect the sale. They should then disclose these defects to the seller's representative.

Does the seller make money on a short sale?

Short Sale Drawbacks For Sellers

Lack of profits: Since a seller owes money to the lender, they won't receive any of the proceeds of the sale of their home.

Who gets the profit with a short sale?

The lender

This typically happens when the owner is under financial stress and is behind on mortgage payments. The owner is obligated to sell the home to a third party, with all of the proceeds of the sale going to the lender. The lender must approve the short sale before it happens.

FAQ

Who submits the BPO in a short sale?

Lender review:

Once the short sale package has been submitted to your lender(s), it will be assigned to a negotiator and the review and response period lasts approximately 1 to 3 months. The lender will order and appraisal or broker price option (BPO) to determine the market value of the home being sold.

What determines the amount of commission paid to a broker?

Commission-based pay is the most common fee arrangement for brokers, regardless of the industry. Commissions are typically based on a percentage of the sale price, loan amount, the total rent amount, or policy premium, and the percentage varies by industry.

What happens when you short sell a house?

A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. In some cases, the difference is forgiven by the lender, and in others the homeowner must make arrangements with the lender to settle the remainder of the debt.

How do I write a hardship letter for a short sale?

In the body of the letter, state the hardship that led you to fall behind on your mortgage payments. Explain to the lender what happened and why it was beyond your control. Keep your explanation brief. The goal of the hardship letter is to explain to the lender the nature of your hardship.

What is a letter of proof of hardship?

I am requesting financial hardship assistance with my (account type; mortgage or credit card, for example) account." Detail your hardship. In a straightforward manner, explain what caused your current financial struggles, whether it is a job loss, divorce, medical emergency or another unexpected hardship.

What to do when your client tells you not to disclose something in real estate

How to negotiate a short sale house? Here are some of the top tips on how to negotiate a short sale.
  1. Make Sure That the Short Sale Is Approved by the Lender.
  2. Hire a Real Estate Agent.
  3. Don't Submit a Low-Ball Offer.
  4. Conduct a Comparative Market Analysis.
  5. Use Cash or Get a Mortgage Preapproval.
  6. Limit Your Contingencies.
  7. Exercise Patience.
How do I write a financial hardship letter? Lenders may use them to determine whether or not to offer relief through reduced, deferred, or suspended payments.
  1. Hardship Examples.
  2. Keep it original.
  3. Be honest.
  4. Keep it concise.
  5. Don't cast blame or shirk responsibility.
  6. Don't use jargon or fancy words.
  7. Keep your objectives in mind.
  8. Provide the creditor an action plan.
What is an example of a hardship letter?

RE: Hardship Letter Dear Sir/Madam, I am experiencing financial hardship due to the government shutdown/furlough. I have fallen behind on my payments because my income has dropped considerably since (month) and I can no longer afford the terms of the original loan.

What happens if the buyer discovers after closing that the seller failed to disclose?

If they forget or refuse, the sale is not valid. If a new home buyer discovers a material defect that the seller failed to disclose before the close of the sale, the law may give them the right to cancel the transaction.

What happens if the seller breaches the listing agreement?

If the seller breaches the agreement, the buyer is entitled to recover consequential damages that were reasonably foreseeable at the time of contracting and actually known or communicated to the seller. This includes lost profits, which are generally not recoverable under Civ.

  • What are the consequences of lying on the sellers disclosure?
    • When they lie, you have grounds for a lawsuit against the seller. Any kind of misrepresentation or even failure to disclose defects in the home can lead to financial compensation. Had the seller disclosed some defects, you might not have bought the home.

  • What are the red flags on closing disclosures?
    • “Red flags” involving the closing disclosure or settlement statement may include: Names and addresses of property seller and buyer vary from other loan documentation. Seller's mailing address is the same as another party to the transaction.

  • How much do you offer in a short sale?
    • As an investor, it's important to compare similar properties in the area and get comparable prices. In some cases, banks have been known to approve short sales priced between five and 10 percent under market, but that depends on the property and area.

  • What is the downside of a short sale on a home?
    • For a short sale to close, everyone who is owed money must agree to take less, or possibly no money at all. That makes short sales complex transactions that move slowly and often fall through. If you're a seller, a short sale is likely to damage your credit — but not as badly as a foreclosure.

  • What is the 10% rule for short selling?
    • The rule is triggered when a stock price falls at least 10% in one day. At that point, short selling is permitted if the price is above the current best bid. 1 This aims to preserve investor confidence and promote market stability during periods of stress and volatility.

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