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Law Supersedes Seller Confidentiality in Code of Ethics

A Realtor turned down a listing because a home had a latent defect and the seller’s preferred remedy was “Don’t tell anyone.” Now someone else listed the home. Does the first Realtor honor the “do not tell” or call the listing broker with his insider info?

CHICAGO – Question: 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, make the broker aware of this defect. But the seller told me to keep it confidential.

Answer: 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 a 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.

© 2023 National Association of Realtors® (NAR). Diane Disbrow helps real estate professionals navigate ethical slippery slopes as director of Shore Real Estate Academy in Tuckerton, N.J.