10.16 Misrepresentation

Company policy is to never misrepresent any facts to anyone at any time.

The courts have traditionally defined misrepresentation as knowingly making a false statement upon which another may rely to their detriment. However, the courts have expanded this basic standard to include what a licensee should know. Therefore, in addition to knowingly making a false representation to either a client or customer, a representation made with a reasonable basis for believing its truth may also be misrepresentation. The REALTOR® Code of Ethics, States’ licensing and administrative laws, business and professions code, statute or chapters, and the Real Estate’s Commissioner’s Regulations address many common areas of misrepresentation.

The basic Real Estate Law dealing with misrepresentation is found in the States’ licensing and administrative laws, business and professions codes, statutes or chapters. The rules prohibit the following:

• Making any substantial misrepresentation.

• Making any false promises of a character likely to influence, persuade, or induce.

• A continued and flagrant course of misrepresentation or making false promises through real estate agents or salesmen.

• Conduct which constitutes fraud or dishonest dealing, whether of the same or a different character than specified in this section.

Although most State code sections do not identify or list specific acts of conduct that are prohibited, the broad language of the law clearly is intent on prohibiting all attempts to misrepresent.

Misrepresentation can also rise to the level of fraud. Lawsuits against sellers and real estate agents based on fraud are based upon the premise that liability should result from either an affirmative or intentional misrepresentation or from a negative or nondisclosure of a fact.

State rules typically define actual fraud as:

Actual fraud, within the meaning of this Chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract:

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;

3. The suppression of that which is true, by one having knowledge or belief of the fact;

4. A promise made without any intention of performing it; or,

5. Any other act fitted to deceive.

State rules typically define constructive fraud as:

1. Any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or,

2. Any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.

Unethical conduct may also arise out of the negligent acts of a licensee. Unethical conduct based upon a negligence theory is the concept that a licensee can be held liable for not exercising ordinary care and skill in the conduct of their real estate practice. This in turn leads to their client being damaged economically. The fiduciary duties required by an agency relationship demands the exercise of a high standard of care. Licensee conduct that falls below the high standard of care requirement is often based upon conduct that is considered negligence.

State rules typically defines negligence as:

Everyone is responsible, not only for the result of his or her willful acts, but also for an injury occasioned to another by his or her want of ordinary care or skill in the management of his or her property or person, except so far as the latter has, willfully or by want of ordinary care, brought the injury upon himself or herself.