IS IT MATERIAL?
According to MN Statute 82.68, Subd. 3, real estate licensees shall disclose to any prospective purchaser all material facts pertaining to the property – be it commercial or residential – of which the licensee is aware, which could adversely and significantly affect the ordinary purchaser’s use or enjoyment of the property, or any intended use of the property, of which the licensee is aware. Additionally, REALTORS® are required under Article 2 of the Code of Ethics to avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. Remember, disclosure is limited to those material facts of which the licensee is aware. Licensees are not required to disclose, “what they should have known,” nor are licensees required to actively research or discover, or advise on matters outside the scope of their real estate license.
Is it a material fact?
The most common question arising under the statutory provision is what constitutes a “material fact” which must be disclosed. There are certain facts which are clearly material and must be disclosed, which include such facts as a flooded basement or the presence of lead-based paint, (lead-based paint disclosure is mandated under federal law). At the same time there are certain facts which cannot be disclosed under state law, such as the fact that a seller has AIDS, the disclosure of which is prohibited under the Minnesota Human Rights Act. Between the extremes of facts that must be disclosed and facts that must not be disclosed are a variety of facts which are open to interpretation as to whether they are material or not.
In analyzing the issue of materiality to determine if a fact must be disclosed, REALTORS® should consider whether the fact would affect (1) the buyer’s use or enjoyment, or any intended use, of the property; and (2) the purchaser’s decision to purchase the property. Put yourself in the shoes of a buyer and ask yourself if this is a material fact that you would want to know if you were a buyer. Will the fact affect the buyer’s use or enjoyment of the property or any intended use of the property? Will the fact in question have an effect on a reasonable purchaser’s decision to buy? Is the seller moving from the property because of a particular fact that affects the use or enjoyment of the property, (i.e., it is too noisy because it is by an airport). If the seller is moving because of a fact that would affect the use or enjoyment of the property, that would strongly suggest it is material and must be disclosed. If the fact deals with an off-site issue, such as a waste disposal dump, the proximity of the problem would bear on its materiality. If it is in close proximity to the property, it is probably more likely to be material than if it is not in close proximity to the property. The potential effect on the property can also help define its materiality. Could the fact materially affect the value of the property? (e.g. adverse versus an infrequently used airport that does not disturb the peace and tranquility of the neighborhood with any frequency.) Materiality can be difficult to define and must be analyzed in light of the unique circumstances of each case.
Facts that are not material:
There are some facts specified in statute that have been designated as not material facts. Licensees and sellers DO NOT have to disclose the fact or suspicion that the property:
- is or was occupied by an owner or occupant who is or was suspected to be infected with HIV or diagnosed with AIDS;
- was the site of suicide, accidental death, natural death, or perceived paranormal activity; or
- is located in a neighborhood containing any adult family home, community-based residential facility, or nursing home.
Seller Disclosure requirements under MN Statute 513 are similar to the licensees’ requirements however, real estate licensees do not have the option for a buyer waiver of their material fact disclosure requirements. In addition, the seller material fact disclosure is required only for single-family residential property transactions however, REALTORS® are obligated to provide material fact disclosures in any type of real estate transaction (i.e. purchase/sale, lease/rental, residential/commercial, etc.).
Susan L. Dioury, JD
Senior Vice President, Risk Management
The Minnesota REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.