What To Do If Your Client Wants To Cover Something Up

Feeling a lump in your throat because your client is asking you to cover something up? There’s no sugarcoating it, that situation just stinks. You pride yourself on operating with integrity and honesty, and you’ve worked hard to build a good reputation as a real estate agent by doing things the right way. You know you have a fiduciary responsibility to represent what your client wants and needs, but there are rules that govern what you’re legally and ethically allowed to do for them.

It’s a delicate situation, to say the least, and navigating it can be tricky. Maybe you or your client think a fib is different than a lie, or the issue is something small enough that it doesn't need to be disclosed. Each situation is unique, and the answers are rarely simple.

Fear not, though. Here we’ll discuss what needs to be disclosed and can't be covered up, as well as how to have that crucial conversation with your client about the benefits of being honest and transparent. It’s also important to keep in mind that if you’re unsure about any real estate situation you should always contact a lawyer for advice.

The distinction between cosmetic issues and material facts is a critical one for every real estate agent to be well-informed on. A cosmetic issue should be addressed, as we’ll discuss below, but a material fact can cause serious ongoing turmoil if not disclosed.

“A material fact in real estate is something that, if known, might have caused a buyer or seller to make a different decision during the transaction.,” says Ilze Chesney, REALTOR^® at Chesney Team Realtors – Keller Williams Realty Ann Arbor in Michigan. “This can include, but is not limited to, remaining in a contract or agreeing on the price of the property,” she adds.

“When I tell a client that they need to disclose these types of issues, I keep in mind that I am actually doing them a big favor, not being argumentative. If they take my advice in the beginning, they are likely avoiding huge legal fees and headaches down the road,” she explains.

Cosmetic defects have more to do with things that may affect the look of the house but not the structural components. Things like a little chipped paint or a cracked tile aren't the nicest thing to look at, but they don't fall into the category of a material defect that needs to be disclosed. Another cosmetic issue could be worn-out carpet. While this isn't something that needs to be disclosed, it is something buyers will notice. One way to address this is to get it fixed before listing, and another is to offer a monetary credit at closing to get the carpet replaced. In either scenario, the seller is being honest and upfront about the condition of the defect, which is always the right approach.

If a seller knows about an issue and doesn’t disclose it, the ramifications can be devastating. For example, if they know there has been evidence of water in the basement or that there’s a serious electrical issue in the home, they have to disclose that. If they don’t, potential buyers can use that information to walk away from the contract, bring down the price or even sue them for damages.

But it’s not just the seller who suffers, as the agent can face some pitfalls as well. If you lie for your client and you know they’re covering something up, there are legal ramifications. If you don't know, you are usually pretty well covered from a legal perspective. That said, both situations can damage your reputation.

“As realtors, we know that when things go sideways, the buck usually stops with us in terms of blame,” says Chesney. “Even if you do everything right and the facts back that up, the perception is usually that it’s your fault. That’s a big reason why it’s so important to be upfront with your client about honesty and transparency when it comes to material facts that need to be disclosed. Your reputation as an agent is on the line.”

No agent wants to challenge their client and essentially tell them they’re a liar. That said, there are times when you need to deliver some tough love to protect them and yourself. Here are seven ways to potentially work with a client who wants to cover something up.

Help Them Understand The Risk

Start by letting them know where you are coming from and why you’re challenging their request to cover something up. It’s all about protecting them from some very bad possible outcomes down the road. Explain the legal definition of a material fact outlined here and the legal and ethical ramifications that can ensue if one isn’t disclosed.

The plain and simple message is, if you lie about this, someone can come after your money later, and they’ll have a good shot at getting it. Also appeal to their sense of decency. Try to have them put themselves in the buyer's shoes. Ask them how they would feel if they were considering buying a home and the seller intentionally hid something from them. If they aren't really the type to care about that sort of thing, go back to the idea that someone can take their money. Everyone can relate to the importance of that.

Fill Out A Seller’s Disclosure

To protect yourself and your client, have them fill out a seller’s disclosure statement. This enables them to indicate what items are in working condition in the home, if there has been evidence of water in the home, if there are known electrical issues and much more. This serves two purposes: It allows them to come clean about the home before you put it on the market, and it creates a signed legal document where your client has indicated, hopefully truthfully, the condition the home is in. Later, if they try to cover something up, you can point to this document as “ammunition” the potential buyer has if a legal battle happens.

Remind Them They Will Probably Get Discovered Anyway

If they lie on the seller’s disclosure statement, it will come out eventually. Most buyers have a thorough inspection done before completing the sale; they aren’t going to just take your word for it when it comes to the condition of the property. It’s always better to be upfront and honest.

Fix The Problem

If the seller can afford it, it’s better just to fix a problem prior to listing it. This will increase the pool of potential buyers, as some may have been turned off by the defect. Many buyers want a turnkey property they can move into right away without a long list of repairs needed. Use this information to encourage your client to get the place into tiptop shape before selling.

Tell It Like It Is

Sometimes homes will be marketed as “as is” if there are cosmetic or material defects galore. Buyers should beware in this scenario. Beyond that, the seller should always outline all the material defects, at the very least. People want to know what they’re buying, no matter the product, so tell them the truth.

Simply put, when it comes to problems with the home, the best-case scenario is to fix it, and the second best case scenario is being honest about it.

Appeal To Their Own Vanity

People generally want to do the right thing, if for no other reason than to be seen as a good person. While they may be forgetting this when they ask you to cover something up, a gentle reminder that their reputation is at stake can be helpful.

Jeff Lichtenstein, owner and founder of Echo Fine Properties in Palm Beach Gardens, Florida, finds that one spouse will usually chime in and reason with the other at that point. “People also don’t like to be embarrassed, and it’s such a small world that fear of them getting a bad reputation in the community usually sinks in,” he says.

Cancel The Listing If You Must

As real estate agents, we don't want to lose out on a sale. However, sometimes it can’t be avoided and just needs to be done. “‘Can’t do a good deal with a bad guy,’ was my Grandpa’s saying in business,” says Lichtenstein, who says he simply won’t do business with a client who isn’t honest. And to that point, he adds, “Bad guys give bad referrals, and it never works out in the end. I’ve followed that motto for my entire career and have had zero problems on the disclosure side because of it.”

Be honest and encourage your clients to do the same. In the end, it will serve them better and keep your reputation clean. Does that sound like good advice and solid strategies? Visit the Rocket Pro^SM Learning Center for more fantastic real estate resources.