What Real Estate Agents Must Disclose When Representing a Seller of Property
Patricia Epstein Putney and William D. Bolte, Bell, Moore & Richter, S.C.

Real estate agents often work with clients who are making one of the most financially and emotionally significant decisions of their lives. Wisconsin has promulgated statutes and regulations imposing certain specific requirements on real estate agents to disclose information during the transaction. This protects both the parties and the agent. The parties receive the necessary information to make an informed decision and the agent is protected if a party later regrets the transaction. It is important for real estate agents to know these requirements in order to protect themselves and for attorneys representing real estate agents to be familiar with their duties and the law.

I. When a Real Estate Agent is Required to Disclose Information to Their Clients or the Other Parties to the Transaction

In Wisconsin, real estate agents[1] are required to disclose certain information to the parties. The required information includes material adverse facts, accurate information about market conditions, and material information to the transaction.[2] These requirements are found in a variety of Wisconsin statutes and regulations including chapters 100 and 452 of the Wisconsin Statutes and chapter REEB 24 of the Wisconsin Administrative Code. Real estate agents and their attorneys should be aware of these requirements so that they ensure that they are meeting their legal obligations.

Generally, when representing a seller involved in a real estate transaction, real estate agents must timely disclose in writing all material adverse facts.[3] A “material adverse fact” is a compound concept, defined as an adverse fact that is of such significance, or that is generally recognized by a competent real estate agent as being of such significance to a reasonable party, that it affects or would affect the party’s decision to enter into a contract or agreement concerning a transaction or affects or would affect the party’s decision about the terms of such a contract or agreement.[4] An adverse fact is defined, in relevant part, as a condition or occurrence that is generally recognized by a competent licensee as doing any of the following:

(1) significantly and adversely affecting the value of the property;

(2) significantly reducing the structural integrity of improvements to real estate; or

(3) presenting a significant health risk to occupants of the property.[5]

It is critical to the definition of a “material adverse fact” that the “condition” or “occurrence” must first be “an adverse fact.”[6]

In addition to disclosing material adverse facts, if a real estate agent chooses to discuss the condition of a property with a potential buyer, he/she assumes a duty to provide truthful and complete information to a potential buyer of the property. The agent cannot omit material facts relevant to the condition of the property if the omissions would foreseeably affect a potential buyer's decision about whether or not to purchase the property.

This rule was established in Ramsden v. Farm Credit Services of North Central Wisconsin. Ramsden involved the sale of polluted land by Agribank and its agent, Hass, to dairy farmers at an auction.[7] The property had previously contained an underground gasoline storage tank on the property which had leaked, contaminated the soil, and killed the cattle of a previous dairy farm located on the property.[8] Agribank and Hass notified the Department of Natural Resources that the groundwater had been contaminated, and the Department ordered Agribank to remove the underground storage tank and clean up the contamination.[9] Agribank removed the tank but did not clean up the contamination.[10] Hass knew that the ground was contaminated and that it had killed the previous owner’s cattle.[11] The day of the auction, Hass told the Ramsdens that the property was useful as a dairy farm.[12] Hass did not mention the contamination or death of the previous farm’s cattle.[13] The Ramsdens then purchased the property at the auction.[14] After purchasing the property, the Ramsdens lost 186 cattle and one of the owners suffered injuries due to the contamination.[15] The Ramsdens sued Hass for intentional and negligent misrepresentation.[16] Hass moved for summary judgment and the trial court found in his favor. The Ramsdens filed an appeal.[17]

The court of appeals reversed the trial court’s decision.[18] It found that Hass may not have had an initial duty to disclose his knowledge of the property to the Ramsdens. However, once he made factual statements about the leaky underground storage tank, he then had a duty to make truthful statements and could not omit material facts about the condition of the property.[19] 

Real estate agents also have a duty to provide accurate information about market conditions that affect the transaction, within a reasonable time after a request for such information by a party.[20]

Finally, real estate agents are required to provide truthful information to the parties. Agents cannot provide untrue, deceptive, or misleading information when making an advertisement, announcement, statement or representation relating to the purchase of real estate to the public.[21] If they do, and a party suffers a pecuniary loss because of it, the injured party can sue and recover the pecuniary loss together with costs.[22] However, this requirement does not mean that a real estate agent faces legal liability for providing incorrect information about which they are unaware. To be liable, the real estate agent must know that his or her statement was “untrue, deceptive, or misleading.”[23] If the real estate agent believes that he or she is providing correct information, the agent will not be liable under this section. This, of course, can lead to a factual dispute.

Another factual dispute can arise when the seller completes a real estate condition report. These reports are required under Wisconsin law and are completed by the seller.[24] A real estate agent is not liable for the misrepresentations of the seller, unless the agent had actual knowledge of the information or was negligent in making the misrepresentation.[25]

In addition to his or her requirements to the parties, a real estate agent has two other duties to disclose certain information: (1) a duty to provide information and advice to the client on matters that are material to the client's transaction and that are within the licensee’s knowledge, skills, and training, when requested by the client; and (2) a duty to disclose to the client all information known by the firm that is material to the transaction and that is not known by the client or discoverable by the client through reasonably vigilant observation, unless the information is confidential or the disclosure is prohibited by law.[26] Neither the client nor the agent can waive these duties.[27] 

II. When a Real Estate Agent is Not Required to Disclose Information to Their Clients or the Other Parties to the Transaction 

There are exceptions to the general rule that real estate agents must disclose material adverse facts to the parties. Real estate agents are generally not certified home inspectors and do not need to inspect a home they are listing in the way an inspector might do, as they lack such expertise. Real estate agents also do not need to disclose material adverse facts if a qualified third party has already prepared a written report that discloses the information, and that report has been provided to the party.[28] “Qualified third party” is defined in the statute and means a federal, state, or government agency, or any person whom the real estate agent or a party to the transaction reasonably believes has the expertise necessary to adequately prepare the report.[29] However, if an agent knows about information which contradicts the information in the report, the agent has a duty to disclose that information.[30]

This exception is clearly illustrated in Conell v. Coldwell Banker Premier Real Estate, Inc. Gene and Lauri Conell were interested in purchasing Judith and William Mauer’s residence.[31] The Mauers were represented by Shirley Hanson, a real estate agent for Caldwell Banker.[32] Hanson prepared the offer to purchase and the Conells signed the offer to purchase.[33] The offer stated that there were no exceptions to the standard warranties “except as shown on the seller’s property condition report.”[34] A separate provision of the offer stated that the offer was contingent on the Conells obtaining a satisfactory condition report regarding the condition of the property.[35]

The Conells contacted a home inspector, and the inspector issued a report several days later.[36] In the report, the home inspector noticed that there were two cracks in the basement wall, the south wall bowed, and that these issues would require repairs.[37] The report also noted that there was “past and present dampness” in a corner of the basement.[38] The Conells received the report and did not object to it.[39] The Conells also received the condition report from the Mauers which mentioned “dampness” and “leaks/seepage” in the basement.[40] The Conells and Mauers closed on the property.[41]

After moving into the home, the Conells learned that the basement had “chronic water problems.”[42] The Conells sued Hanson, alleging that Hanson had a duty as the real estate agent to disclose the water problems to the Connels.[43] Hanson moved for summary judgment, arguing that she was not required to disclose the water problems under § 452.23(2)(b) of the Wisconsin Statutes.[44] The court granted summary judgment to Hanson on those grounds.[45] The Conells appealed, arguing that they relied on the language in their offer to purchase that they were relying upon the Maurers’ representations stated in the offer.[46]

The court of appeals affirmed the district court’s ruling.[47] The court found that Hanson was shielded from liability because the Conells received a report from a qualified third-party home inspector.[48] The court further found any actions by the Conells against Hanson according to the language of the contract must be based on Hanson’s actions as the seller’s agent.[49] The obligations imposed by the statutes and regulations regarding the disclosure of information to the parties is not based on any kind of principal/agent relation but rather is its own separate duty.[50] As a result, regardless of whether Hanson violated the contract, she did not violate her duties to the Conells to disclose material adverse facts because they had received a report from a qualified third party disclosing the issues.

Real estate agents also do not need to disclose material adverse facts if a party knows or can discover the material adverse fact through reasonably vigilant observation.[51] Real estate agents are also not required to disclose a material adverse fact if the disclosure is prohibited by law.[52]

Determining whether a fact is adverse will require analyzing the individual circumstances in each case. Z Fish Shanty, LLC v. Koch, an unpublished court of appeals case from 2019, illustrates how to apply that slightly nebulous definition. In Z Fish, a property owner (“Koch”) listed a duplex property for sale.[53] Koch signed a real estate condition report that he was not aware of any defects in the heating system.[54] Koch also signed an amendment that the furnaces at the property were 14 years old.[55] An LLC (“Z Fish”) submitted an offer to purchase the property which included language that the value of the furnaces was “$0.00.”[56] Prior to closing, Z Fish learned that there had been two “no heat” service calls made about the furnaces and Koch had been told that he “may want to consider replacing [the heat exchanger in one of the furnaces] before it becomes a potential carbon monoxide concern."[57] However, the technicians who serviced the furnaces stated that while the furnaces should be replaced to avoid any carbon monoxide issues in the future, the furnaces could be operated safely.[58] Z Fish refused to close on the property and sought specific performance with price abatement, breach of contract, and deceptive advertising.[59]

The court analyzed whether the furnaces’ condition was an adverse fact.[60] The court first found that the furnaces did not have an adverse effect on the property because they were operational and did not pose a known safety risk.[61] The court also noted that a 14-year-old furnace would not have much value regardless of the age of the furnace.[62] The court next looked at whether the age of the furnaces would shorten the normal life of the property. The court found that it would not since the furnaces had continued to operate for at least 14 months after the service call.[63] Finally, the court found that the furnaces would not significantly impair the health and safety of the future occupants of the property because they could be operated safely.[64]

There are other occasions when real estate agents do not need to disclose certain information to the parties. Real estate agents are not required to disclose if the property was the site of a specific act or occurrence unless it had an effect on the physical condition of the property or a structure located on the property.[65] This means that a real estate agent would not need to disclose that a crime was committed in the home or that a death had occurred in the home. Real estate agents are also not required to disclose the location of adult family homes, community-based residential facilities, or nursing homes in relation to the property.[66] Finally, with limited exceptions, real estate agents are not required to disclose any information related to the fact that a particular person is required to register as a sex offender on the sex offender registry.[67] 

Real estate agents are required to provide certain information to parties in a real estate transaction. Providing as much information as possible will help the parties have the most information when deciding whether to enter into an agreement. In addition, providing this information will protect a real estate agent in case a party ever regrets the deal and looks for someone to blame or to rescind the contract. Providing all of the necessary information to the client will act as a shield and help protect the real estate agent from an unhappy former client or purchaser.

III. Conclusion

When defense counsel assumes the defense of a real estate agent in a real estate transaction, he or she must of course familiarize him or herself with the regulatory statutes and requirements and also carefully read the transaction documents, especially looking into whether there was a waiver of any contingencies in the offer that might provide a solid defense to the claims raised. For example, when a purchaser waives a home inspection contingency and later complains about matters that would have been readily addressed therein, this may lay the basis for a summary judgment motion. In addition, emails and texts between the parties can be extraordinarily helpful in determining what was discussed between them. Every such detail can support summary judgment or a defense verdict.

Author Biographies:

Patricia (Patti) Epstein Putney is a Shareholder at Bell, Moore & Richter, S.C. in Madison. She obtained her Bachelor of Arts degree in Art History from Bryn Mawr College in 1984 and her Juris Doctor degree from Brooklyn Law School in 1989. She moved from New York City to Madison in 1995. Patti's practice area relates to the defense of all types of civil litigation. This includes defense of physicians, nurses, and other health care professionals in medical malpractice cases, as well as in licensing, disciplinary and credentialing disputes. She regularly defends personal injury and wrongful death actions, including automobile accidents, premises liability, products liability, insurance agent negligence as well as insurance coverage disputes. Patti has had numerous jury trials throughout the state, has litigated in federal courts and appellate courts and has argued before the Wisconsin Supreme Court and the 7th Circuit Court of Appeals. Patti is a member of the State Bar of Wisconsin, Wisconsin Defense Counsel, and the Dane County Bar Association. She also started a group called “Lawyer Moms” for working women lawyers with children. 

William D. Bolte is a transactional attorney specializing in estate planning, probate, and general business and property matters. William graduated with a B.A. from the College of Wooster and a J.D. from the University of Wisconsin – Madison. Outside of his practice, William is a member of the Real Property, Probate & Trust Law Section. He also volunteers as a judge for high school mock trial and is a volunteer attorney with the Dane County Basic Estate Planning Clinic.