Your Duty to Disclose a Property’s Flood Risks
Flooding is the most common and costly natural disaster in the U.S., and your clients may have a lot of questions about flood risks for properties they’re considering. Real estate professionals have several legal and ethical obligations when it comes to flood-related disclosures in a transaction.
Flooding is considered a material fact in real estate transactions and, as such, failure to disclose flood damage can result in liability, cautions Deanne Rymarowicz, an associate counsel with the National Association of REALTORS®, in a video provided by NAR. Also, she says, it’s important for real estate professionals to counsel buyers about the need and availability of flood insurance and to be aware of disclosure laws in their state to know their obligations.
Earlier this month, nonprofit research firm First Street Foundation unveiled a searchable website that allows homeowners nationwide to find detailed flood risk information for specific properties. First Street reveals nearly 15 million homes and commercial properties across the U.S. to be at substantial risk of flooding—this is 6 million more properties that have not been reflected on the federal flood maps that have long been used by homeowners, real estate professionals, lenders, and others to assess risk.
NAR released guidance on how to talk with customers about the First Street Foundation website and the differences with Federal Emergency Management Agency maps. NAR also recently commissioned a study by the Legal Research Center to investigate flood-related litigation over the past two decades and its potential implications for real estate professionals and brokerages.
The Legal Research Center uncovered more than 4,500 potentially relevant cases from 2000 to 2020 regarding flood disclosures, and 61 cases that were specifically related to flooding and that involved a real estate professional or brokerage.
The majority of those cases were brought by buyers against sellers’ agents or brokerages and alleged fraud, breach of fiduciary duty, negligence, and intentional misrepresentation or omission. Six of these cases resulted in significant verdicts and awards against the real estate licensee and brokerage.
In the video below, Rymarowicz provides an overview of real estate professionals’ legal and ethical disclosures when discussing flood risks with clients.
Source: REALTOR® Magazine