Not revealing known property defects to a buyer—a common problem in real estate, studies show—can land you in court. Follow these best practices to avoid liability.

When a home buyer discovers a property defect that wasn’t disclosed by the seller or listing agent, the buyer may sue, claiming the home was misrepresented. This has become a more urgent problem in real estate since buyers in last year’s frenzied market started waiving the home inspection contingency to win bidding wars. Sixty percent of sellers admit to not disclosing a known problem with their property to buyers, according to a July study from Cinch Home Services(link is external).

“Failure to properly disclose can lead to misrepresentation claims, ranging from fraud to negligence and, in some states, innocent misrepresentation,” Deanne Rymarowicz, associate counsel at the National Association of REALTORS®, warns in the latest “Window to the Law” video. She cites a court case in which an agent was ordered to pay $170,000 after being found to have shown a “reckless disregard for the truth” by not disclosing a listing’s prior water damage.

Rymarowicz offers best practices to help avoid a misrepresentation claim due to the failure of the seller to disclose:

• Do not complete a disclosure form on behalf of a seller.
• Encourage the seller to reveal all known facts and defects, and share them with the buyer.
• Review the seller’s disclosure form to make sure they answered all the questions.
• If the seller refuses to disclose a material fact or defect you’re aware of, you should disclose it to the buyer as soon as possible.
• Document any information the seller has provided to the buyer, such as answers to questions about the condition of the property. Keep any research you’ve done separately on the condition of the property as well.

©National Association of REALTORS
®Reprinted with permission

You can’t misrepresent a property, but there are ethical ways to use images generated by artificial intelligence to improve your clients’ experiences and better serve their needs.

Artificial intelligence now makes it possible for you to send a listing photo, along with commands for whatever image enhancements you want, to an algorithm—and receive the enhanced photo in seconds. This new frontier for real estate technology may open endless possibilities for your marketing efforts, but it also comes with a murky legal landscape. At this point, there are more questions than answers, experts said Saturday at the Emerging Business and Technology Forum during NAR NXT, The REALTOR® Experience(link is external) in Orlando, Fla.

AI-generated images are strikingly accurate, said Dan Weisman, director of emerging technology at the National Association of REALTORS®. He recently asked a generative AI tool to create a photo of a “transparent glass sculpture of a duck.” Weisman noted that the resulting image showed the duck with a colored background so the viewer could tell it was transparent. Weisman also generated an image of a corgi in a “house of sushi,” which proves that the algorithm understands the nuances of dog breeds and building construction.

DALL·E 2(link is external) and Google Imagen(link is external) are the primary platforms for AI-generated images right now, and the technology is free (for now) to anyone who wants to try it, Weisman said. He added that within real estate, there could be three primary purposes for AI-generated images:

1. Previewing the end result of a renovation project.
2. Modifying listing photos to help buyers envision themselves in a home.
3. Generating stock photos for marketing purposes.

Using these tactics, though, requires you to look back at the REALTOR® Code of Ethics for guidance, said Matthew Troiani, NAR’s director of legal affairs. He pointed out that Article 2 prohibits REALTORS® from exaggerating, concealing or misrepresenting pertinent facts about a property or transaction. Still, there are ways to ethically use generative AI in real estate, Troiani said. A buyer’s agent, for example, could show their clients what a home could look like with alternative features if they’re willing to do some improvement. The could help buyers think creatively at a time when low inventory makes it difficult to be picky.

But, of course, a listing agent shouldn’t put these kinds of altered photos on the MLS without disclosure. Before using photos enhanced by AI, ask yourself whether you’re trying to improve the customer’s experience or pull a fast one, Troiani said. “If you lead with transparency and in your client’s best interest, 99% of the time, you’ll be fine.” When it comes to who owns the legal rights to AI-generated images, “there are more questions than answers,” Troiani said, noting that U.S. copyright laws “protect original works of authorship fixed in a tangible form of expression.” For now, he said, legal authorship is only extended to humans and not technology. If you’re concerned about infringement, don’t share AI-generated images in a public domain, Troiani added.

©National Association of REALTORS®Reprinted with permission

As a community leader, you have a critical role in keeping certain groups from being locked out of the real estate market.

A long history of discriminatory real estate practices—including past policies held by REALTOR® organizations—has made it difficult for people of color to break into homeownership. Real estate professionals today are in a key position to help undo some of that harm and lead cultural change around housing, Julia Lashay Israel, head of inclusion and belonging at Keller Williams Realty International, told attendees at a Sunday session during NAR NXT, The REALTOR® Experience(link is external) in Orlando, Fla.

Standing as a model are the Minneapolis Area Association of REALTORS® and the California Association of REALTORS®, both of which recently laid out plans to support housing equity in their respective states.

Recent reports continue to show the racial homeownership gap in the U.S. is widening. Whites accounted for 88% of all buyers over the past year, while Hispanics accounted for 8%, and both Blacks and Asians each accounted for 2%. The share of White and Hispanic home buyers grew year over year, while the share of Black and Asian buyers decreased, according to the National Association of REALTORS®’ 2022 Profile of Home Buyers and Sellers.

“Housing affordability and limited inventory impacted the buying power of all buyers. However, the greatest impact was felt by Black and Asian Americans,” Jessica Lautz, NAR’s vice president of demographics and behavioral insights, said at a separate session at NAR NXT. “Population growth among Hispanic Americans likely drove their increase, while many White Americans are repeat buyers with housing equity that allows them to make easier trades in today’s market.”

The Agent’s Role in the Conversation

Israel shared with attendees how they can be part of changing the ownership gap, including:

• Report violations. Many real estate professionals don’t know how to report fair housing violations or discrimination complaints that they witness, Israel said. Don’t let slide situations you know about, like a fellow agent refusing to show a house to a person of color, because “this continues to perpetuate if you don’t report it,” she added. Any violations can be reported to the HUD Office of Fair Housing and Equal Opportunity. Also, violations committed by real estate pros should be reported to local REALTOR® associations for accountability.
• Build awareness. “Be aware of the inequities and inequalities, and acknowledge that it happens so we can start doing something about it,” Israel said. Embrace diversity and learn about cultural differences to build on that awareness. Further, implement consistent practices and policies for showings and listing presentations to avoid unconscious bias.
• Refuse bad actors. Clients may not know that certain requests are discriminatory, even if they are well-intentioned. Israel offered an example of a seller who asked that only a Black family purchase their house to help close the homeownership gap. “We can’t do that. It’s discriminatory. But sometimes, the client doesn’t know that,” Israel said. “It’s our job to have the conversation.” Educate your clients upfront during buyer presentations and listing appointments to avoid facing an awkward moment during the transaction, Israel said. Many existing real estate forms include the agent’s role in adhering to fair housing laws. Highlight the language and talk about what it means with clients, she suggested.
• Get involved. Be part of the voice for change by getting involved in local and national associations as well as community and industry boards and committees. Join zoning and planning commissions so you’re aware of policy discussions before laws are made that affect others. Consider joining multicultural trade associations, like NAHREP and NAREB, to be part of ongoing conversations and efforts. “It is our role to be involved in this industry, which sees the largest transfers of wealth in America,” Israel said. “It is a big deal what we do, and we need to get involved and take an active role.”

©National Association of REALTORS®
Reprinted with permission

Test yourself on three common scenarios when you’re taking buyers on home tours.

You have to watch your step legally every day. But how do you sidestep the legal land mines you might not be aware of? In a session called “Real Estate Karma: Is This Illegal, Unethical or Just Plain Rude?” during NAR NXT, The REALTOR® Experience(link is external) in Orlando, Fla., real estate attorney Trista Curzydlo posed several scenarios to the audience. What do you think? Are these three situations illegal?

Scenario Number One: Marijuana

The problem: A listing agent learns the seller has a cannabis grow room in the basement. The agent decides the smell might turn off some potential buyers during an open house. The agent borrows his broker’s branded moving van to temporarily move the cannabis out of the home and into the broker’s parking lot.

Is it illegal, unethical or rude? Likely yes, even in the 21 states (and the District of Columbia) where cultivating, possessing and consuming cannabis for personal use is legal or decriminalized. “Very few states have a policy for how you transport the plants,” Curzydlo says. “If you facilitate transport, you could have an issue.” So how should you handle listings where cannabis is present?

• Don’t engage in the unauthorized practice of law by discussing cannabis cultivation, possession, transport or storage.
• Do work with the client to ensure the cannabis is secured in a locked place.
• Do use the MLS to notify other brokers about unavailable areas of the house. But don’t tip off strangers to the fact that there’s a valuable commodity in the listing. If a buyer wants to see the “unavailable room,” note in the remarks that you’ll make arrangements for that.

Scenario Number Two: Hidden Cameras

The problem: A prospective buyer’s agent turns off the seller’s router before showings to disable any Wi-Fi–enabled recording devices, then turns it on again when leaving.

Is it illegal, unethical or rude? It’s rude at the least, Curzydlo said. Turning off the router can wreak havoc on all the interconnected smart devices in a home. In addition, it’s unethical—and potentially illegal—to tamper with a seller’s property. You could, in some cases, be breaking trespass laws.

But could it also be illegal to record buyers during showings? Yes, it can be, though the law handles audio and video separately, Curzydlo said. Video recording typically doesn’t require consent but hinges on an expectation of privacy. For instance, you wouldn’t expect to be filmed while using the bathroom during a showing, Curzydlo said. In some states, legality focuses on whether the video recording is for prurient or salacious purposes.

When it comes to authorizing audio recording, Curzydlo noted there are state-by-state requirements. For instance, most states require that at least one person who’s a party to the conversation give consent; some states require all parties’ consent.

If a seller or seller’s agent surreptitiously records a prospective buyer’s conversation with their agent, the buyer and agent can’t give consent. That raises the question: Will the information recorded give the seller a negotiating advantage? If so, the seller and seller’s agent could be liable for false and deceptive practices under the Federal Trade Commission Act and several state laws.

Seller’s agents should indicate in the MLS listing that the property has recording equipment, and buyers’ agents should coach their clients about what not to say during a showing.

Scenario Number Three: Animals

The problem: A seller who is severely allergic to dogs demands that no animals be allowed inside the home during showings.

Is it illegal, unethical or rude? It’s not illegal, but it can be a tricky situation. “The Americans with Disabilities Act and the Fair Housing Act allow service and support animals to accompany their companions pretty much everywhere,” Curzydlo said. So, it’s important to take reasonable steps to work with individuals who require them, Cruzydlo said. You could offer a video tour, for instance. It’s also difficult to mitigate the effects of the presence of a dog for a seller with a severe allergy. It’s not like a restaurant where you can seat the allergic person far away from the animal. “So, if the sellers can demonstrate that they have a severe allergy that can’t be mitigated, they might be able to deny the animal,” Curzydlo said. A support or service animal could also be removed if it isn’t under the control of the owner or isn’t housebroken.

©National Association of REALTORS®
Reprinted with permission

From disclosing property issues and multiple offers to the risks of buyer “love letters,” these were the top law and ethics topics on your radar this year.

Ethical quagmires during showings, disclosure issues, the legal risks of artificial intelligence and buyer “love letters” proved to be big areas of concern this year for real estate professionals.

The top law and ethics articles at REALTOR® Magazine online for 2022 are:

1. 3 Showing Dilemmas: Illegal, Unethical or Just Plain Rude?

Test yourself on three common scenarios when you’re taking buyers on home tours.

2. Top Claim Against Agents: Failure to Disclose

Not revealing known property defects to a buyer—a common problem in real estate, studies show—can land you in court. Follow these best practices to avoid liability.

3. Disclosing Other Offers on Homes for Sale

As a listing agent, am I required to disclose that I already have offers on the property to any agent who wants to show my listing or any buyer who wants to see my listing?

4. Using AI to Enhance Listing Photos Can Be Legally Risky

You can’t misrepresent a property, but there are ethical ways to use images generated by artificial intelligence to improve your clients’ experiences and better serve their needs.

5. First Amendment Argument Wins the Day Love letter ban ruled unconstitutional, but risks remain if buyers submit them.

©National Association of REALTORS®
Reprinted with permission

Follow these steps to ensure you’re not running afoul of the law when using pictures online.

You have blogs, brochures and social media pages to fill with content, and a photo can be worth a thousand words—or a stiff financial penalty if you’re not minding copyright laws. Ignorance of the law is not a legal defense against accusations or lawsuits.

“A copyright owner owns the rights to reproduce, distribute copies, perform, display and prepare derivative works of the copyrighted material,” Chloe Hecht, senior counsel at the National Association of REALTORS®, says in the latest “Window to the Law” video. “Using a copyrighted work without permission is an infringement and could result in liability.”

Hecht offers several tips in the video to minimize risks of a copyright infringement accusation, including:

• Check permissions. Do you have permission from the owner to reuse the image or reprint the text? Permissions are also needed to use music in podcasts or videos or even at events.
• Don’t rely on a third party’s compliance. You still need to obtain permission from the copyright owner or ensure that the third party does. “The owner may not be immediately apparent, so budget time to conduct any necessary research and to communicate with the owner about permission,” Hecht cautions. “If you cannot determine who the owner is, don’t use the work.”
• Get permission in writing. If you’re granted permission, use a license agreement that describes the scope of work that you’re permitted to use. For your listing photos, NAR has created sample photo agreements that could be used with photographers.

©National Association of REALTORS®
Reprinted with permission