Avoid Liability in ‘Sight Unseen’ Sales

Problems can arise if a home doesn’t meet a buyer’s expectations in real life.

Key Takeaways:

More buyers than ever are making offers without setting foot inside a home.

Disappointed purchasers most often bring claims against a real estate broker when they discover a previously unidentified defect or other undesirable feature of the home.

Disclosure laws and the REALTOR® Code of Ethics still apply in virtual transactions.

Buying a home “sight unseen” was not a phenomenon invented during the COVID-19 pandemic. It’s long been common for investors and military buyers who are relocating, among others, who sometimes must make purchases without visiting a property. With the shift to virtual tours and showings in the past year, however, more buyers are making offers without setting foot inside a home. It’s important for real estate pros to know the risks in “sight unseen” sales that can lead to liability—and take steps to mitigate those risks.

When buyers purchase a property relying only on photos and online tours, problems can arise if the home doesn’t meet their expectations in real life. Disappointed purchasers may bring claims against the listing broker, the buyer’s broker, or both when they discover a previously unidentified defect or other undesirable feature. Such claims typically involve a failure to disclose a material fact or a misrepresentation of the property’s condition or characteristics.

Use these best practices to limit surprises—and potential liability—in a “sight unseen” transaction.

Advise the purchaser of all known material defects. Disclosure laws and the REALTOR® Code of Ethics still apply in virtual transactions. Seller disclosures must be accurately and fully completed and provided as required by state law. A buyer’s broker should follow up with the listing broker for any missing responses and ask the buyers what additional information they need related to any disclosed defect. For example, if a seller discloses prior water damage, the buyers may want to ask for proof of remediation and request additional inspections.

Avoid misrepresentation or exaggeration in listing photos and virtual tours. Resist adding or removing anything of material substance—Standard of Practice 12-10 requires REALTORS® to present a true picture to the public. Enhancing the lawn color during the dull winter months might be okay, but airbrushing out the power lines across the backyard is not.

Watch out for red flags. REALTORS® have a duty under Article 2 of the Code of Ethics to avoid exaggeration, misrepresentation, or concealment of pertinent facts, but do not have a duty to discover hidden defects. Carefully view the property during a virtual showing to identify any observable defects. Point these out to the buyers on camera and put them in writing after the show- ing. Follow up with the listing broker on any issues where the buyers want more information.

Avoid assuming buyers’ duties. Ask buyers to write down issues they’re concerned about (such as noises, smells, or proximity to neighbors). Observe and report objectively, but don’t make the decisions or assume something “isn’t a big deal.”

Protect yourself, and your clients, in writing. Ensure that the purchase agreement includes an appropriate due diligence period and contingencies like inspections and a final walkthrough. Work with an attorney to draft an addendum to clarify your role and emphasize the buyer’s responsibilities. The addendum should specify that the buyers—not the brokers, agents, or seller—are responsible for verification, walkthroughs, and professional inspections to confirm that the property is satisfactory. Many state or local REALTOR® associations have “sight unseen” addendums available to members.

Encourage the use of other professionals. Recommend the use of home inspectors and other relevant professionals in writing. If buyers insist on waiving inspections, document both your advice and their informed waiver in writing.

Acting with care, reason, and diligence may not prevent all surprises when buyers move into their “sight unseen” home. But having these practices in place will help you significantly to defend against liability.

Source: REALTOR® Magazine