How to Decide What to Disclose

Knowing where to look is key step.

January 1, 1999

What do these two situations have in common?

Case 1: During a listing appointment, the sellers confide that their 5-year-old son was accidentally shot and killed in his bedroom by two boys examining their father's hunting rifle in the house next door. The sellers instruct you not to tell any buyer about the accident.

Case 2: One of your sales associates tells you, her sales manager, that she's about to write her first offer. She tells you about the house; you recognize it as the house next door to your brother's. You know that the owner of the house, who had been diagnosed with the HIV virus, recently died.

If you answered that both situations involve a property that could be considered “stigmatized,” you're right. Stigmatized property, sometimes called “psychologically impacted property,” may be perceived to have less value because of an event that took place at or near the property, as opposed to a true material property defect.

How do you handle disclosure in these two cases?

Federal fair housing law prohibits housing discrimination against individuals with disabilities, including those with AIDS, as in Case 2. To volunteer information regarding people with disabilities could be construed as discriminatory and may violate fair housing law.

Many state laws address the issue of stigmatized properties and prohibit any legal action against a real estate practitioner for failure to disclose incidents such as a violent crime, suicide, or the suspicion that a property is or has been haunted.

Often, though, neither federal law nor state law, nor the Code of Ethics, addresses the situations we face. For example, disclosing the accidental shooting death of the child in Case 1 isn’t prohibited in most states. Because you know that the sellers will list with you only if you agree not to tell, you have a decision to make, and that decision will be based on your own sense of ethics.

As a sales manager, make sure your salespeople understand the fair housing law, state statutes, and the Code of Ethics. Keep them from saying the wrong thing by helping them know what’s the right thing to say.

Should you disclose?

To help you decide whether you should disclose, here are four guidelines to follow, in this order:

  • Step 1. Review the federal fair housing laws.
  • Step 2. Know your state's property disclosure laws.
  • Step 3. Look to the Code of Ethics for guidance.
  • Step 4. Know yourself and your own ethical reasoning style.

Maryann Bassett is a consultant, facilitator, trainer, coach, frequent speaker on ethics, and member of the NAR Professional Standards Committee. She heads Bassett Consulting, Albuquerque, N.M., specializing in real estate business planning.

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