Is a back-up contract a material fact?

QUESTION: My client is under contract to buy a home in a popular neighborhood. During the due diligence period, we submitted a list of proposed repairs to the seller, and the seller refused all of them. My client told me to inform the seller that if he would not perform the repairs, then my client would terminate the contract. The listing agent responded by telling me that the seller had already accepted a back-up contract, and that if my buyer would like to terminate, the seller would just proceed with the back-up contract.

I confronted the listing agent because he never informed me of the back-up contract. The listing agent replied that the back-up contract is not a material fact and that he had no duty to disclose it. Is the listing agent correct?

ANSWER: In our opinion, the listing agent is correct in this situation. Generally speaking, a material fact is any important or relevant fact to the issue at hand. The North Carolina Real Estate Commission has stated that in real estate transactions, material facts fall into several categories: (1) significant facts about the property itself; (2) facts relating directly to the property, such as a pending zoning change; (3) facts concerning a contracting party’s ability to complete the transaction; and (4) facts that are known to be of special importance to a party. If a fact falls into one of these categories, then the fact is a material fact that must be disclosed to any party an agent deals with, even if the party is not represented by the agent.

NC REALTORS®’ Back-Up Contract Addendum (Form 2A1-T) states: “It is a condition of this Back-up Contract that the Primary Contract is terminated as described below before Buyer and Seller shall be obligated to perform under this Back-up Contract.” Accordingly, a back-up contract can only become effective if the primary contract fails to close. Since the back-up contract does not affect the property itself or limit a seller’s ability to complete the transaction, it is not a material fact that would need to be disclosed to a buyer.

Release Date: 3/28/2017

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