Section 6: Unit 2: Misrepresentation and Good Faith

Making an inadvertent misstatement

unIntentional

Undisclosed personal interest in a transaction

Self-dealing

Chris accepts an undisclosed referral fee from a mortgage broker. a)Self-dealing b)Intentional c)Unintentional

a)Self-dealing

Chris is aware of a basement leak in his listing but doesn't disclose this to prospective buyers. a)Self-dealing b)Intentional c)Unintentional

b)Intentional

material fact

one that would cause a reasonable person to either not take an action that was otherwise taken or take an action that was otherwise not taken.

Negligent misrepresentation

when someone makes a statement that they should have known was false. -Perhaps they didn't check facts for themselves and just made an assumption.

Misrepresentation's Four Elements

1. The false statement or representation of a material fact. 2. The person who falsely represented the material fact was aware of its falsity (or should have been). - If the person making the misrepresentation was aware of the falsity, that's intentional misrepresentation - If the person making the misrepresentation was NOT aware, this may be negligent (they didn't do their due diligence) or unintentional misrepresentation (they relied on a reasonable source they shouldn't have). 3. Another person (reasonably) relies on the false information. 4. The person who relied on the false information is harmed.

Puffery or Misrepresentation Enjoy a view that will never be obstructed!

Misrepresentation

Puffery or Misrepresentation Home values in this neighborhood are going to skyrocket in the next five years!

Misrepresentation

Puffery or Misrepresentation Best house on the block!

Puffery

Puffery or Misrepresentation Enjoy a view that never gets old!

Puffery

Puffery or Misrepresentation Views you've only dreamed of!

Puffery

Erica describes the condo she's listed as being "the best unit in the building." What's this an example of? a)Intentional fraud b)Lying c)Positive misrepresentation d)Puffery

d)Puffery

Which of these is an example of a material fact? a)The fact doesn't influence the value of the property. b)The fact would not have resulted in a different outcome. c)The seller would have accepted an offer regardless of the fact. d)The seller would not have accepted an offer had he or she known the fact.

d)The seller would not have accepted an offer had he or she known the fact.

Self-dealing

personal interest in a transaction that is not disclosed. + It is illegal for a licensee to engage in the brokerage activities of selling or buying a property without disclosing a personal interest in the transaction to all parties.

A material fact could impact:

the value of the property if the truth was known, or it could cause a seller not to accept a buyer's offer (e.g., the buyer is actually not financially qualified to complete the transaction).

Unintentional misrepresentation (innocent misrepresentation)

when someone makes a statement based on a reasonably reliable source, that turns out to be false. when the agent unknowingly makes a misstatement of fact that is material, the buyer relies on it, and the buyer is harmed -Perhaps the buyer's agent tells the buyer that the roof is new, because that's what the seller told her. It turns out to be false, but the buyer's agent was relying on the seller's information. It's a misrepresentation, but it was unintentional and the buyer's agent was relying on a reasonable source.

Concealment of a known defect

Intentional

One element of intentional misrepresentation is that ______. a)No one relied on the false statement b)The false statement did not cause harm to the person who relied upon it c)The person making the false statement knew it was false (or should have known) d)The person relying on the false information knew it to be fals

c)The person making the false statement knew it was false (or should have known)

A seller tells Chris a crack in the wall is not an indication of foundation issues. The agent shares this with the buyer, who purchases the home. It turns out there are foundation problems. a)Self-dealing b)Intentional c)Unintentional

c)Unintentional

You make a listing presentation to a client, then learn she's meeting with a few more licensees before deciding which licensee gets her listing. You know these competitors. Which action best demonstrates good faith? a)You contact the other licensees to try to convince them not to work with the seller. b)You tell the seller all of the dirt you have on the other licensees. c)You tell the seller you hope she'll decide to work with you. d)You walk away from the listing.

c)You tell the seller you hope she'll decide to work with you.

Which of the following is true about inadvertent (unintentional) misrepresentation? a)A false statement was made. b)No harm was done to anyone. c)The person hearing the false statement did not rely upon it. d)The person making the false statement knew it was false.

a)A false statement was made. - Inadvertent misrepresentation is a false statement that can still harm and may have been relied upon, but the person making the misstatement did not know it to be false.

Standard Forms Arthur is the exclusive listing agent for Benjamin's commercial property that sold. Arthur used a standard purchase contract form commonly used in the area and just filled in the blanks as they applied to this transaction. While presenting the contract for Benjamin's signature, Arthur explained that the form was prepared by attorneys and suggested that Benjamin carefully read it over and consult an attorney with any questions. Benjamin said everything looked and sounded good and signed the form. However, at closing, Benjamin expressed that he misunderstood the contract, especially related to the date of possession. He subsequently filed a complaint that Arthur should have had an attorney draft the contract rather than Arthur "filling in blanks." What are your thoughts? Did Arthur commit a violation? a)Yes b)No

b)No - Arthur was not in violation. He used a standard form (common practice), prepared by an attorney (as any contract should be) and recommended Benjamin consult an attorney. Now, if Arthur had drafted a new contract rather than using a standard form, there'd be an issue.

What is the difference between positive misrepresentation and inadvertent misrepresentation? a)Positive involves a beneficial outcome; inadvertent results in a negative outcome. b)Positive means intentional; inadvertent means it wasn't intentional. c)Positive means made by the seller's side; inadvertent is misrepresentation by the buyer's side. d)Positive means the parties agreed to the facts; inadvertent means the parties disputed the facts.

b)Positive means intentional; inadvertent means it wasn't intentional.

One element of misrepresentation is when ______. a)No one relied on the false statement b)The false statement caused harm to the person who relied upon it c)The false statement did not cause harm to the person who relied upon it d)The person relying on the false information knew it to be false

b)The false statement caused harm to the person who relied upon it

Not Good Faith Examples:

- You purchase a client's property, intending to turn it into a duplex, without informing the owner of your plans. - Your client wants to purchase a commercial building. You would earn a sizable fee. However, you have no experience negotiating commercial purchases. You take the listing. - Your client wants to purchase a commercial building. You would earn a sizable fee. However, you have no experience negotiating commercial purchases. You take the listing, but discreetly consult with a professional commercial broker when you have questions. - You have a new listing and learn from the seller that a train track will be built behind the property and the seller wants to move due to the expected noise issue, but asks you not to mention it to prospective buyers. You agree. - You are making a listing presentation when you learn that a competitor you've run into before will also be presenting to the sellers later that day. You tell the sellers something negative you know about that agent. - You represent a seller and do not tell a prospective buyer that the house was the site of a recent suicide, even though the buyer asked you if any deaths have occurred on the property. You answer, "Not to my knowledge." - You have a listing on a house being sold through an estate and disclose to a prospective buyer that the prior owner had died of AIDS.

Good Faith Examples:

- Your client wants to purchase a commercial building. You would earn a sizable fee. However, you have no experience negotiating commercial purchases. You tell your client you are inexperienced but your client insists you take the listing anyway. You inform your client you will be consulting with a professional commercial broker and obtain your client's written permission. - You have a new listing and learn from the seller that a train track will be built behind the property and the seller wants to move due to the expected noise issue, but asks you not to mention it to prospective buyers. - You tell your client you cannot obey this order. You are making a listing presentation when you learn that a competitor you've run into before will also be presenting to the sellers later that day. You tell the sellers you hope they will decide to work with you. - You represent a seller and do not tell prospective buyers that the house was the site of a suicide.

Are You Acting in Good Faith?

As a real estate professional, you have a duty to treat your customers and all parties honestly; your duty to your clients is to act in their best interests, even if that conflicts with your own. - Your client's profit is more important than your profit. For example, if you want to purchase a client's property with the intention of reselling it for a profit, you must inform your client of those plans first. - If you're asked to represent someone in a transaction that's beyond your abilities or experience, you must inform that person so, and refuse to act as an agent in that transaction unless you consult with a broker who has the appropriate experience and you receive permission from your client. - You must disclose all material facts about a property you're listing to prospective buyers, even if your seller client asks you to keep the information confidential. - Your role is to use your knowledge of real estate to advise and support your clients, not to make decisions for them.

Chris represents the buyer and doesn't tell the buyer that the seller is offering the buyer's agent a bonus if the offer he brings closes within 30 days. a)Self-dealing b)Intentional c)Unintentional

a)Self-dealing

Ashley is a buyer's agent representing Tom and Kate. She showed them several properties, but one really piqued their interest. They scheduled a second showing, and a third, and a fourth. Ashley called Tom and Kate after the final showing to understand where they stood on the property. Tom expressed some concern about the price. Rumor had it that Tom's company might relocate him to a new area, and he was nervous that this might mean taking a loss if he had to turn around and sell the home. Ashley provided Tom and Kate with a written guarantee to try to reassure them about the property. In the letter, she said, "Our office guarantees to get your money out of it for you any time in the next year if you should need to sell." Tom and Kate purchased the property. Before the year was up, Tom and Kate called Ashley because he was being relocated. Ashley agreed to list the property for the same amount at which Tom and Kate purchased the home, but there were no offers. When Ashley discussed lowering the list price due to current market conditions, Tom and Kate filed a complaint of misrepresentation. Do Tom and Kate have a case? a)Yes b)No

a)Yes - Ashley's written guarantee to Tom and Kate was the issue in this case. Ashley did engage in misrepresentation.

Carla is a real estate salesperson with Elite Properties. The brokerage offered bonuses to agents who closed transactions on Elite's listings. Carla represented Dennis, who required an accessible home with a pool or with room to build a pool. Carla showed Dennis several properties in the Falcon Ranch neighborhood. All of the properties were Elite's listings, and one had an outdoor pool. Dennis decided to put in an offer on this property that was accepted. Soon after the transaction closed, however, Dennis learned there was a similar property in the same neighborhood that had an indoor pool. This property would've been a better option for the family, but it was not an Elite Properties listing. Carla knew this property was available, and that it was better suited for her client but didn't show it to Dennis since it wasn't one of Elite's listings. Did she commit a violation? a)Yes b)No

a)Yes - Carla knew a pool was essential to Dennis' decision about a property to purchase. Upon questioning from Dennis's attorney, Carla admitted that her decision to not show the property with the indoor pool was partly based on the fact that it was not Elite's listing and offered no bonus to Carla. She put her interests ahead of her client's—a big no-no and a big violation.

Intentional misrepresentation (positive misrepresentation)

also known as fraud, this occurs when not only should the person have known better, but they did know better and intentionally remained silent or misstated the facts. intentional concealment of a defect. In other words, you know full well what the defect is, but hide it or fail to disclose it. - An example is a listing agent who sees the potential to subdivide a property, but doesn't inform the seller client, then buys the property at a deep discount for the agent's own profit. Intentional misrepresentation can include omission of a material fact and not simply a misstatement of one. +If the law imposes a duty to disclose a known fact, and someone intentionally remains silent, that's passive fraud. Passive fraud is intentional nondisclosure. Active fraud is intentional misstatement of a material fact.

Which of the following is an example of self-dealing? a)A licensee lists his property with another firm and sells his home without informing buyers of his license status. b)A licensee purchases a listing through his cousin but does not inform the seller. c)A licensee purchases a property for personal profit. d)A licensee sells a property for personal profit.

b)A licensee purchases a listing through his cousin but does not inform the seller. -Making a profit is not illegal. Illegal self-dealing is having an undisclosed personal interest in a transaction.

Difference Between Puffery and Misrepresentation a)Only misrepresentation is false. b)A reasonable buyer would know puffery to be an exaggerated statement and not rely on it, whereas misrepresentation occurs when a reasonable buyer would rely on the statement, as it is coming from an expert in the field. c)Puffery is meant to help sell the property. Misrepresentation is seldom used for this reason.

b)A reasonable buyer would know puffery to be an exaggerated statement and not rely on it, whereas misrepresentation occurs when a reasonable buyer would rely on the statement, as it is coming from an expert in the field.