What is a 'Material Fact?' in a real estate purchase or sale in NC?

Jun 9, 2020

3 min read

Folks want to know what you know when purchasing a home in NC. It is most often a MUCH smoother transaction, when everyone goes into a transaction 'eyes wide open', - when current issues are shared, especially when the seller is in process of fixing, or they offer a series of estimates to fix, the buyers are more likely to think the sellers are being honest, and the sellers are not holding their breath wondering whether things will come up during the inspection. A great way for a seller to list a home for sale, is by using the Certified Pre-Owned Program - www.CPOexperts.com for more information.

Here are some guidelines from the North Carolina Real Estate Commission, regarding Material Facts.

Facts about the property itself

This category comprises significant property defects or abnormalities such as:

• structural defect(s),

• malfunctioning system(s),

• leaking roof, or

• drainage or flooding problem(s). Facts that relate directly to the property This category includes external factors that affect the use, desirability, or value of a property such as:

• a pending zoning change,

• existence of restrictive covenants,

• plans to widen a street, or

• plans to build a shopping center adjacent to a property.

Facts directly affecting the principal’s ability to complete the transaction

This category includes any fact that might adversely affect the ability of a principal (seller or buyer) to consummate the transaction such as:

• buyer’s inability to qualify for a loan,

• inability to close on a home without selling a currently owned home, or

• seller’s inability to convey clear title due to the commencement of a foreclosure sale or judgment lien on the property.

Facts that are known to be of special importance to a party

This category includes facts of special interest or importance to a party such as:

• specific zoning restrictions,

• the refusal to purchase a home within a neighborhood governed by an HOA,

• the refusal to purchase a home within the city limits, or

• the refusal to purchase a home that has been previously occupied by a pet.

Additional Facts That Must Be Disclosed to an Agent’s Principal Under agency law, an agent must disclose to the principal any information that may affect the principal’s rights and interests or influence the decision of the principal in the transaction. Relevant information that a broker-agent must share only with his/her principal includes:

• the other party’s willingness to agree to price or terms different from those previously stated,

• the other party’s motivation for engaging in the transaction, or

• any other information that might affect the principal’s rights and interests or influence the principal’s decision in a transaction.

State Law and Disclosure of Certain Facts Certain facts that may seem material may be excused by state and fair housing laws such as:

• disclosing the death or serious illness of a previous property occupant,

• disclosing a convicted sex offender occupying, having occupied, or residing near a property, or

• disclosing a current or former occupants’ AIDS/HIV status.

Brokers are advised to look for red flags. A “red flag” (determined by the NC Real Estate Commission) is the presence of any fact or issue that should make a reasonably prudent broker working with a buyer or seller suspect that the information provided by another party may be incorrect. The broker has a duty to investigate any issue or fact that could mean a potential problem with the property.

Examples of “red flags” are:

• stains on the ceiling, floors, or in the cabinets;

• discoloration of flooring;

• absence of septic permits;

• unpermitted spaces;

• leaks;

• cracked foundational issues; or

• miscalculations of square footage.

If a red flag exists the broker can complete additional research by:

• asking the owner about known issues with the property,

• asking the owner to receive and review service records for repairs conducted on the property,

• researching the existence of septic permits and building permits with the local municipality, or