Disclose Encroachment

How does a listing agent know when to disclose property line problems?

May 2, 2014

Q: A neighbor’s fence cuts into the seller’s lot. As the listing agent, should I disclose that?

A: Article 2 of the Code of Ethics requires REALTORS® to avoid “exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. REALTORS® shall not, however, be obligated to discover latent defects in the property.”

The Code of Ethics and Arbitration Manual discusses “pertinent” facts: “Absent a legal prohibition, any material fact that could affect a reasonable purchaser’s decision to purchase, or the price that a purchaser might pay, should be disclosed . . . if known by the REALTOR®.”

Included in the concept of pertinent facts is a fact that may affect “the potential purchaser’s ability to resell the property at a future date.” The encroachment of the neighbor’s fence onto the property of the listing clearly may affect what a reasonable buyer may decide to purchase in that the title to the property has some “flaw” or “cloud.” The encroachment may also affect the buyer’s ability to sell the property in the future unless the encroachment is resolved.

Unless the seller can work with the neighbor to resolve the problem, that encroachment is likely a pertinent fact that should be disclosed to a prospective buyer. Most likely this sort of encroachment would also be required to be disclosed on a seller’s disclosure statement, whether the disclosure statement is required by law or by practice. Even if the encroachment is considered “minor,” it may still be considered pertinent by a hearing panel in an ethics complaint. As in any question of disclosure, the best practice to stay within the Code is “when in doubt, disclose.”

Have a dilemma? Send your ethics questions to ethics@realtors.org.

Bruce Aydt

Attorney Bruce Aydt, ABR, CRB, SRS, is a national real estate educator, a Missouri real estate broker, and past chair of the National Association of REALTORS® Professional Standards Committee.