Section 5 Unit 3 Lesson 4

Licensees may encounter several potential issues when advertising and marketing property. Match each issue with its meaning. answer key: a. Negligent misrepresentation b. Passive fraud c. Negligence d. Puffing e. Active fraud 1. Exaggerating 2. Failing in the duty of care 3. Making a statement the licensee should have known was false 4. Intentional nondisclosure of a known fact 5. Intentional misstatement of a material fact

1. puffing 2. negligence 3. negligent misrepresentation 4. passive fraud 5. active fraud

intentional misstatement = _____ fraud

active

________ fraud is intentional __________ of a material fact

active misstatement

Intentional misrepresentation can include _____ of a material fact and not simply a __________ of one

omission misstatement

example of intentional misrepresentation

An example would be a listing agent who saw the potential to subdivide a property but didn't inform the seller client. That agent then purposely didn't market the property or present offers, and then bought the property at a deep discount for the agent's own profit.

Puffing (or puffery) involves a bit of hyperbole (exaggeration). An example would be: "This has to be the deal of the century."

There's nothing wrong with puffing, provided you're sincere and you don't say the same thing about every house you list or show a buyer.

Chris is considering how to present his listing. He's known for his aggressive marketing tactics, but he doesn't want to cross the line into misrepresentation. Help Chris identify these statements as puffery or misrepresentation. 1. Best house on the block! 2. A view you've only dreamed of! 3. Home values in this neighborhood are going to skyrocket in the next five years! 4. Enjoy a view that never gets old! 5. This view will never be obstructed!

1. puffery 2. puffery 3. Misrepresentation 4. puffery 5. Misrepresentation

You'll want to steer well clear of misrepresentation and fraud in your career, and the best way to do that is to understand what they are and aren't. Identify these statements as true or false. 1. Clients often sue their agents when agents didn't disclose something they should have known. 2. Clients often sue their agents for disclosing material information. 3. An agent who fails to recommend a home inspection to his buyer client in order to prevent a sale from falling through is guilty of fraud. 4. Intentional misrepresentation includes omission of a material fact.

1. true 2. false 3. true 4. true

What's the difference between puffing and misrepresentation? 1. Puffing involves an intent to mislead, and misrepresentation is only intended to draw attention through an inflated claim. 2. Puffing appears to a reasonable person as an exaggerated statement that would not be relied on, whereas misrepresentation occurs when a reasonable buyer would consider the statement reliable. 3. Puffing is aimed at a buyer audience, and misrepresentation is aimed at sellers.

2. Puffing appears to a reasonable person as an exaggerated statement that would not be relied on, whereas misrepresentation occurs when a reasonable buyer would consider the statement reliable.

Puffing slides into the realm of misrepresentation or even fraud when you intentionally state falsehoods about a property. "This property's going to appreciate more than any other home in this neighborhood simply because of its location" is pushing it. You could say, "This property should appreciate over time due to its location" and be on safe ground, but by making an unsubstantiated claim, you are misrepresenting the facts. If you went further and said, "I have it on good authority that this property's due for a 15% appreciation hike next year," then this is blatant misrepresentation because there's no way to know this.

If you're ever wondering whether something is puffing or misrepresentation, ask yourself whether it could be tested in a court of law. If it could, be very sure of your facts before you speak.

Clients often sue their agents for negligence because they believe the agent did—or didn't—do any of the following things: 1. The agent should have known something or did know something that she didn't disclose. 2. The agent took an adverse action that harmed the client. 3. The agent failed to take action when she should have, which harmed the client.

Negligence is failing in the duty of care. An example would be failing to present an offer on behalf of a buyer client in a timely manner, which resulted in the seller accepting an offer from another buyer. Or the agent failed to notify the buyer of the importance of having a professional home inspection, and, after the sale, the buyer discovered latent material defects that would have caused him to either offer less for the property or to rescind his offer.

Negligent misrepresentation can occur when someone makes a statement that she should've known was false. Misrepresentation is fraudulent when it's _________ misrepresentation. ______ and _______ misrepresentation are essentially the same thing and mean not only should the person have known better, but she did know better and intentionally remained silent or misstated the facts.

intentional fraud & intentional

active fraud = intentional _______

misstatement

passive fraud = intentional ________

nondisclosure

intentional nondisclosure = ______ fraud

passive

If the law imposes a duty to disclose a known fact and someone intentionally remains silent, it's _______ fraud, which is intentional ____________.

passive intentional nondisclosure