Law Supersedes Seller Confidentiality Requirement in Code

Latent material defects must be disclosed, despite an owner’s demand.
A worker repairing a furnace

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Q: A few months ago, I had a transaction fall through because the home inspection revealed a cracked heat exchanger. The seller not only refused to fix it but also told me to not disclose it to any buyers or cooperating brokers. I told the seller “no way” and canceled the listing. Now, the property is back on the market with a different broker. I’m not an expert on heat exchangers, but I know enough to realize that it could be a serious issue for the safety of a home. I don’t see anything in the listing or seller disclosure about this. It’s possible the owner has replaced the furnace or fixed it. I want to call the new listing broker to find out and, if not, to make the broker aware of this defect. But the seller told me to keep it confidential.

A: That is quite the dilemma! Fortunately, the Code of Ethics provides guidance on this situation. Article 1, Standard of Practice 1-9, obligates REALTORS® to preserve confidential information gained during or following the termination of that listing. In other words, REALTORS® cannot use confidential information to the client’s disadvantage, like revealing their motivation or price they would accept. However, this is a latent material defect that left unrevealed could cause serious harm to a homeowner. A 2001 amendment to Standard of Practice 1-9 speaks directly to your situation: “Information concerning latent material defects is not considered confidential information under the Code of Ethics.” While the Code of Ethics establishes obligations that may be higher than those mandated by law, in any instance where the Code and the law conflict, the obligations of the law must take precedence.


The Code of Ethics

The Code of Ethics ensures that consumers are served by requiring REALTORS® to cooperate with each other in furthering clients' best interests.