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Navigating Serial Transactions: The Imperative of Material Fact Disclosure

Last month, Skyline Staff and Instructors attended the NCREC Spring Educator's Conference. At this conference, we heard from commission members and staff about many issues, but none were highlighted more than the issue of serial transactions and the growing number of complaints and disciplinary actions related to them.

Serial transactions present unique challenges and opportunities for real estate professionals in the complex landscape of real estate transactions.

A serial transaction occurs when a property goes under contract but fails to reach closing, resulting in the property returning to the market.

The pivotal moment in these transactions often arises during the discovery phase, where material facts about the property are uncovered. These facts, whether they pertain to physical defects, legal encumbrances, or other significant aspects, can heavily influence a buyer's decision to proceed with the purchase.

Disclosing material facts is not merely a courtesy; it's a legal and ethical obligation for real estate agents. These disclosures ensure transparency, build trust, and protect all parties involved in the transaction. The consequences of failing to disclose material facts to future interested buyers can range from lost sales and damaged reputations to legal actions and penalties against an agent's license.

To illustrate the importance of complying with disclosure requirements, let's examine two contrasting case studies from the real estate industry.

Case Study 1: The Positive Power of Disclosure

A charming three-bedroom home hit the market in a bustling suburban neighborhood near Charlotte, quickly attracting a young couple eager to find their first home. During the inspection phase, a unique feature was uncovered: an old, sealed-off well beneath the garden shed, a remnant of the property's history. Concerned about potential issues, the couple decided to withdraw from the transaction.

Undeterred, the listing agent disclosed this feature in subsequent listings, highlighting its historical value and potential as a unique garden feature. This transparency paid off when the property caught the eye of an award-winning gardener who was enchanted by the idea of using the well to water their garden plants and for a fountain. The well became the centerpiece of the sale, turning a potential defect into a unique selling point. The property sold above the asking price, and the happy buyer went on to restore the well, turning it into a highlight of their new home and garden.

This case demonstrates how, when handled with care and creativity, full disclosure can transform a potential deal-breaker into an asset, leading to a successful and satisfying transaction for all involved.

Case Study 2: The Fallout of Failure to Disclose

Conversely, a high-end property in a coveted beachfront location presented a starkly different scenario. During the initial contract period, a thorough inspection revealed significant erosion under the sea wall, posing a serious risk to the property's stability. However, motivated by the high commission and pressured by the seller, the listing agent chose not to disclose this critical defect to subsequent buyers after the initial deal fell through.

The property was sold to an unsuspecting buyer, who only discovered the issue months later during a severe storm that caused the partial collapse of the sea wall. The resulting legal battle was extensive and costly. The buyer faced enormous repair costs and a devalued property, while the seller and agent were sued for nondisclosure and misrepresentation.

The agent faced severe repercussions, including a suspension of their real estate license and irreparable damage to their professional reputation. This case starkly illustrates the potential consequences of failing to adhere to disclosure requirements, highlighting the risks to clients, professionals, and the integrity of the transaction.

Disclose, Disclose, Disclose!

These case studies underscore the critical importance of disclosing material facts in real estate transactions. Compliance not only safeguards the interests of all parties involved but can also transform potential challenges into opportunities for a successful sale. Conversely, the failure to disclose can lead to disastrous outcomes, legal repercussions, and long-term damage to professional integrity. As such, real estate professionals must prioritize transparency and ethical practices in every transaction, ensuring a foundation of trust and reliability in the industry.

How do you handle serial transactions? Let us know in the comments or share with a colleague in an upcoming CE Class!

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