Natural Hazards: Sellers’, Buyers’, and Realtors’® Rights, Duties And Obligations

disaster03Introduction. Armageddon? End Times? The Four Horsemen of the Apocalypse?  Lately, it appears that Mother Nature has been working overtime, what with floods, earthquakes, landslides, and other assorted natural disasters around the world.  What’s a home buyer to do?!  And what about their real estate broker?  How well Realtors® respond to their buyers’ concerns about these issues speaks volumes about how well they balance their clients’ need for information versus their own risk management responsibilities. With that backdrop, let’s explore the issue of real estate brokers’ disclosure duties concerning potential natural hazards.

What Does Oregon Law SayGenerally, the laws in Oregon are more favorable to brokers than those of our neighbor to the south. In California, they are generally held to a higher standard; specifically, being unaware of a particular hazard may not be sufficient to avoid liability. California law holds brokers to a test different than Oregon.  In California the question is “Should the broker have known of the risk?”

The 1984 California case of Easton v. Strassburger, asked this question and the Court answered “Yes.”  In Easton, the seller of an expensive property failed to disclose that their land had been subject to severe slippage due to the fact that the home, swimming pool and guest house had been constructed on poorly compacted fill dirt.  The purchaser, upon discovering the problem and the concealment, sued everyone who had their fingerprints on the transaction; the seller, builders, and real estate agents.  It was undisputed that the sellers failed to disclose the problem to their own agents and the buyers.

Following a jury trial, liability was assessed against all defendants, including a finding that the brokers were 5% responsible.  The brokers appealed, based upon the fact that they were unaware of the problem, as their seller had lied to all of them.  The Court ruled:

In sum, we hold that the duty of a real estate broker, representing the seller, to disclose facts, *** includes the affirmative duty to conduct a reasonably competent and diligent inspection of the residential property listed for sale and to disclose to prospective purchasers all facts materially affecting the value or desirability of the property that such an investigation would reveal.

[Note: This case was heard in 1984 – long before the single agency laws of today, where – subject to certain specific exceptions – each agent now represents a single party. Accordingly, in the Easton case, the Court found that the listing agent had the duty of disclosure to the buyer under the rules of ordinary negligence. ~PCQ]

Elsewhere, the Court stated:

Accordingly, we find that the [jury] instruction at issue in this case was legally correct, for, as the trial judge stated to the jury, a seller’s broker in a residential real estate transaction is “under a duty to disclose facts materially affecting the value or desirability of the property … which through reasonable diligence should be known to him.” [The word “jury” added for clarity ~PCQ]

Oregon law has never imposed a “should have known” standard on licensees. Rather, ORS 696.805(2)(c) and ORS 696.810(2)(c) say that brokers for the seller and buyer both have an affirmative duty to disclose material facts known by themselves and not apparent or readily ascertainable by the other party or their agent.  Note that this obligation is non-waivable – i.e. the seller and buyer cannot be said to have waived or released the brokers from this duty of disclosure.  Thus, if a seller’s broker knows of a material fact negatively affecting the subject property, and it is not apparent or readily ascertainable by the buyer or his/her agent, that broker has a duty of disclosure.

Lest a licensee should object, arguing that such disclosure to the other party would violate his/her duty of confidentiality to their own client, ORS 696.800(3) addresses this conundrum, as follows:

Confidential information means information communicated to a real estate licensee or the licensee’s agent by the buyer or seller of one to four residential units regarding the real property transaction, including but not limited to price, terms, financial qualifications or motivation to buy or sell. Confidential information does not mean information that:

(a)The buyer instructs the licensee or the licensees agent to disclose about the buyer to the seller or the seller instructs the licensee or the licensee agent to disclose about the seller to the buyer; and 

(b)The licensee or the licensees agent knows or should know failure to disclose would constitute fraudulent representation.”  [Underscore added.]

In short, the duty to fully disclose to the other party or their broker a known but not readily ascertainable material defect trumps the duty of confidentiality to one’s own client.  Nevertheless, brokers are not required inspect a property to affirmatively look for negative material information. In fact, ORS 696.835 specifically provides that none of the licensees’ statutory affirmative obligations *** relieves a seller or a buyer from the responsibility to protect the sellers or buyers own interests respectively. This same concept is repeated in the Seller’s Property Disclosure Statement (ORS 105.464), where it provides directly above the buyer’s signatures, that:

As buyer(s), I/we acknowledge the duty to pay diligent attention to any material defects that are known to me/us or can be known by me/us by utilizing diligent attention and observation.

What Does The Seller’s Property Disclosure Statement Say About Natural HazardsSubject to limited exceptions, all sellers of residential property must complete and deliver a Seller’s Property Disclosure Statement to the buyer.[1]

Listed below are those questions dealing with hazards [some natural, and others, such as fill dirt, manmade]:

  • Are there problems with settling, soil, standing water or drainage on the property or in the immediate area? [ ]Yes [ ]No [ ]Unknown
  • Does the property contain fill? [ ]Yes [ ]No [ ]Unknown
  • Is there any material damage to the property or any of the structure(s) from fire, wind, floods, beach movements, earthquake, expansive soils or landslides? [ ]Yes [ ]No [ ]Unknown
  • Is the property in a designated floodplain? [ ]Yes [ ]No [ ]Unknown
  • Is the property in a designated slide or other geologic hazard zone? [ ]Yes [ ]No    [ ]Unknown
  • Has any portion of the property been tested or treated for asbestos, formaldehyde, radon gas, lead-based paint, mold, fuel or chemical storage tanks or contaminated soil or water? [ ]Yes [ ]No [ ]Unknown
  • Is there a sump pump on the property?[2] [ ]Yes [ ]No [ ]Unknown

Note that the Seller Property Disclosure Statement suffers from other ambiguities concerning natural hazards.  Here is one example:

Is there any material damage to the property or any of the structure(s) from fire, wind, floods, beach movements, earthquake, expansive soils or landslides?  [Underscore mine. ~PCQ]

Note that the question is not posed in the past-tense, e.g. “Has any material damage ever been caused by…?”  Instead, it essentially asks whether any material damage currently exists from a natural hazard.  In other words, if the damage has been repaired, it may legitimately be answered “No” or even perhaps “Unknown.”

Notwithstanding the above questions, there is one remaining question [No. 9.A.], the answer to which could conceivably deal with natural hazards – or virtually anything else for that matter. However, it is so open-ended, that in my experience it is rarely, if ever, answered in the affirmative.  Here is the question:

Are there any other material defects affecting this property or its value that a prospective buyer should know about? [ ]Yes [ ]No

*If yes, describe the defect on attached sheet and explain the frequency and extent of the problem and any insurance claims, repairs or remediation.

Note that this question subtly expands the scope of the inquiry; all of the prior questions are objective and factual in nature. E.g. Does X exist on the property? E.g. Has X ever occurred on the property? But Question No. 9.A. asks about “material defects”*** “affecting the property or its value….” [Italics mine.~PCQ]

The term “material defects” appears nowhere else prior to this question. Nor is it ever defined, thus leaving it to the readers – sellers and buyers, and their respective brokers – to interpret the meaning themselves.[3]  For example, what if the neighbor’s property suffered a serious landslide, but the seller’s property was unscathed?  Is this a “material defect” that affects the subject property or its value that a prospective buyer would want to know?  It would certainly seem so, assuming that one regarded it as a “material  defect.”

Lastly, note that a seller’s answers to the Property Disclosure Statement are ‘best knowledge’ representations only.  They are not warranties or guarantees.  If the seller tells the truth based upon his/her actual knowledge, that is all they are required to do.  Moreover, notwithstanding the completion of the form, buyers are expected to perform their own due diligence including having professional inspections, etc.

What Does The OREF Statewide Sale Agreement Say About Natural HazardsSection 12 of the 2014 Residential Real Estate Sale Agreement contains a list of “seller representations.” None deal expressly with natural hazards, although the seller represents that he/she knows of no “material defects in or about the Property.” However, the word “Property” in the Sale Agreement is expressly limited to the legally described property, not any surrounding properties.  Thus, if the seller knew that his/her house sat on the San Andreas fault, it should be disclosed as an exception to “material defect” statement in Section 12.  But if it ran under the neighbor’s house, likely not.[4]

ConclusionReal estate agents cannot be held to the standard of care of geologists, hydrologists, meteorologist, or any other experts – unless they voluntarily commence giving advice on these topics.  But that does not mean that they should stand mute when a concerned buyer asks about earthquakes, slides, fires, etc.

Conversely, as for buyers, having a real estate broker does not mean the latter must proactively research the issue of every conceivable natural hazards known to an area, in anticipation of questions. Mother Nature does not always give convenient warnings, and a long dormant fault-line might decide to wake up the day after closing. Realtors® do not have to be professional handwringers, reminding buyers of the vagaries  of Mother Nature.

However, this does not mean that buyers are without any resources to vet the issue of potential natural hazards affecting the property they want to purchase.  To the contrary, access to reliable information is more available today than ever before.  The Internet only leaves those behind who choose to be left behind. While buyers should not ignore their seller’s disclosures and representations, such statements should be taken with a large ‘grain of salt.’  Buyers should always seek to independently verify important information regarding natural hazards of particular concern to them.  Having one’s real estate broker doing the legwork and relaying the information to the client is not – in my opinion – ‘independent verification.’  Buyers need to be personally proactive, and in today’s Internet world, it is far easier than ever before.

Listed below is a sampling of website links on natural hazards in and around the Portland Metro area. There are many more.

Flooding

a.     http://www.portlandoregon.gov/bes/article/215594

b.     http://multco.us/floodmaps

c.      http://www.oregonriskmap.com/index.php/county-profiles/county-profiles/147-example-county-profile-template-sp-17420

d.     http://www.portlandmaps.com/metadata/viewer/display.cfm?Meta_layer_id=52128&Db_type=sde&City_Only=True

Earthquakes

a.     http://earthquaketrack.com/us-or-portland/recent

b.     http://earthquake.usgs.gov/earthquakes/states/oregon/history.php

c.     http://www.portlandoregon.gov/pbem/58572

d.     http://nwdata.geol.pdx.edu/DOGAMI/ims.html

e.     http://www.oregongeology.org/sub/earthquakes/earthquakehome.htm

Fire

a.     https://www.portlandoregon.gov/bds/article/156583

b.     http://www.portlandoregon.gov/parks/43167

c.     http://www.portlandoregon.gov/fire/article/391359

d.     http://www.oregon.gov/ODF/pages/fire/fire.aspx

Landslides

a.     http://www.portlandoregon.gov/bds/article/72539

b.     http://www.oregon.gov/dogami/pages/landslide/landslidehome.aspx

c.     http://www.oregongeology.org/sub/Landslide/Landslidehome.htm

d.     http://www.portlandoregon.gov/transportation/article/319810

Lastly, there exists a very robust and important real property website for sellers, buyers and Realtors® – Portlandmaps.com. Besides addressing all of the natural hazards affecting any particular address, it is a cornucopia of public record information relating to lot size, property taxes, tax assessments and value,  building permits, zoning action, assessments, crime, noise, etc. etc.  Virtually anyone owning – or considering owning – real property in the City of Portland should familiarize themselves with this website.  To be forewarned is to be forearmed!

 


[1] Remember that there are several exclusions to this law, thus freeing the seller from having to fill out the form.  They may be found at ORS 105.470.  Note: Just because a seller is relieved of the responsibility of completing the form does not mean he/she may commit fraud through non-disclosure or concealment of known material defects.

[2] This question doesn’t directly ask about the hazard of flooding in and around the home – which is addressed in the first question – but the existence of a sump pump is a pretty good indicator that the property is located in a low lying area or is otherwise susceptible to flooding.

[3] What is meant to “affect” a property? A bus line in front of the house might “affect” the property in a good or bad way, depending on the owner’s perspective. Same issue with the proximity of a grade school.

[4] This assumes all other things are equal.  This assumes that there is no damage to the subject property and the seller does not know whether the property is located in a “geologic hazard zone,” as asked in the Seller’s Property Disclosure Statement.