Buyers rely heavily on the information provided by sellers and real estate brokers to make informed decisions. However, when that trust is broken due to inaccurate or misleading information, it can lead to misrepresentation claims. These claims can result in legal disputes, financial losses, and a damaged reputation for brokers. For this reason, it’s essential to understand what constitutes misrepresentation and how to prevent it.
What Is Misrepresentation in Real Estate?
Misrepresentation occurs when a party involved in a real estate transaction provides false or misleading information about a property. This can happen in several ways, and it’s important to recognize the types of misrepresentation:
Fraudulent Misrepresentation – This happens when a party knowingly provides false information with the intent to deceive. For example, a seller might lie about a known issue with the property, such as foundation problems, in hopes of securing a sale.
Negligent Misrepresentation – In this case, the misinformation is provided unintentionally but results from a failure to verify facts. For instance, if a broker provides incorrect details about zoning laws without confirming them, this could lead to a negligent misrepresentation claim.
Innocent Misrepresentation – This occurs when false information is shared without intent or negligence. Although less severe, it can still lead to legal issues if a buyer relies on the incorrect information.
Preventing Misrepresentation Claims
Conduct Thorough Due Diligence
Before presenting any information about a property, verify every detail. This includes checking the accuracy of property listings, confirming zoning restrictions, reviewing tax records, and ensuring that all disclosures are properly made. By conducting thorough due diligence, you can avoid passing along inaccurate or incomplete information to potential buyers.
Encourage Complete Disclosures
Encourage sellers to fully disclose any issues with the property upfront. Sellers must provide full and accurate details about the property’s condition, including any known defects or repairs. As a broker, you can help facilitate this by providing a clear list of required disclosures.
While the Illinois Residential Real Property Disclosure form does not require disclosure of issues that have been repaired and the seller believes that the matter does not require any further remediation, a seller cannot get into trouble for disclosing and explaining too much. If there was a foundation issue that was repaired and has never presented another problem, saying that cannot be a problem. It is only a problem if it was not disclosed and the issue was not fully resolved.
But also be aware that a question regarding the condition of the property asked in attorney review requires a response to the exact question asked and cannot be answered as if asked under the Illinois Residential Real Property Disclosure. So, if the question is, “Has the property ever experienced water retention?” The seller cannot answer in the negative if there was leakage but it was fixed. The seller must answer that there was leakage, and preferably clarify that a repair was made and no further issues were experienced.
Avoid Making Assumptions
Even if you believe you know a property well, always double-check any assumptions. Avoid guessing or making statements without supporting evidence. For example, do not assume that a property is free of structural issues unless verified by an inspection.
Document Everything
Keep detailed records of all communication with buyers, sellers, and other parties involved in the transaction. Document emails, inspection reports, and disclosures so that you have evidence to support your statements should any claims arise.
Misrepresentation claims in real estate can lead to costly disputes and damage your professional reputation. By understanding the types of misrepresentation and taking steps to verify information, encourage full disclosure, and document the transaction process, brokers can help protect themselves and their clients from these risks.
The Minchella & Associates Difference
With over 40 years of experience in Illinois real estate law, Erica Minchella has represented thousands of home sellers and buyers, landlords, and commercial and investment property owners. For more information, schedule a consultation today.
