The basement that was painted over
You are the principal broker at a brokerage where salesperson Kim listed a 1968 split-level for $385,000. The sellers completed Ohio's Residential Property Disclosure Form, checking 'no' to known water or drainage problems. Two weeks before listing, the seller texted Kim: 'Please don't mention the basement flooding we had last spring - we had it painted and we need to close before school starts.' Kim did not correct the form. Buyers represented by another brokerage made an offer that waives the inspection and is written 'as-is,' and the sellers accepted. During the title search you learn that a prior owner's waterproofing contractor recorded a mechanic's lien that was later released. The buyer's agent emails Kim asking directly, 'Was there ever any water issue in that basement?' Kim asks you whether she has to say anything, since the buyers waived inspections and bought as-is.
1. Does the as-is sale and the inspection waiver relieve the sellers or Kim of the disclosure obligation? Explain.
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No. Three separate ideas are being blurred together.
As-is addresses the condition of the property and the seller's promise to make repairs. It does not license a false statement about a known defect. Ohio's Residential Property Disclosure Form is a statutory disclosure with its own requirements; the form itself contemplates as-is sales, so choosing as-is cannot erase the duty to complete the form accurately.
The inspection waiver allocates the risk of conditions a buyer could have discovered. It does not allocate the risk of conditions the seller actively concealed. A buyer who waives inspection is saying 'I accept what I find,' not 'I accept being misled.'
Kim's status. The seller's knowledge became the licensee's knowledge when the text arrived. Kim is now in the position of having assisted an inaccurate disclosure form. Concealment of a known material defect is the kind of conduct that supports license discipline, civil liability for misrepresentation, and possible rescission - regardless of the as-is language.
2. What must Kim do now, and what do you do as principal broker?
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Kim's obligations. Answer truthfully. She may not deny the flooding, may not deflect, and may not stay silent while the buyer's agent relies on a false form. Before responding, Kim should go to the sellers in writing: the form must be amended, the history disclosed, and the buyer notified. Explain the consequences of refusal - fraud claims, rescission, discipline - and give them a short deadline.
Your role. Supervise, document, and escalate. Confirm the sellers' response in writing. If they agree, the amended form goes to the buyer's agent immediately and the buyers decide how to proceed; the sellers may need to negotiate a credit or accept a cancellation. If they refuse, the brokerage must not continue marketing or closing the transaction on a false disclosure. Options include notifying the buyer's agent directly and terminating the listing. Consult counsel and notify E&O before you act.
Do not confuse confidentiality with complicity. The sellers' motivation and negotiating position are confidential. A known physical defect that they have misrepresented is not - Kim's duty of honesty to the public and the buyer overrides the instruction to stay quiet.
3. If the buyers close and later discover the flooding, who is exposed and on what theories?
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The sellers. Fraudulent misrepresentation and fraudulent concealment - a knowingly false disclosure form plus an affirmative instruction to hide the history. Remedies include rescission, damages, and potentially attorney fees. The as-is clause is a weak shield against intentional concealment.
Kim. License discipline for making or assisting a false statement and for failing to disclose a material fact, plus individual civil exposure. Her text message file is discoverable and reads badly: it shows she knew and did nothing.
The brokerage. Vicarious liability for Kim's acts within the scope of her license, and a supervision claim - what did the principal broker's file-review process catch? Your written escalation and the sellers' refusal, if documented, changes the picture from 'the broker covered it up' to 'the broker tried to correct it.'
Also clear the lien. The waterproofing lien was released, but the title commitment must show it and the closing file should contain the release. An unreleased or stale lien resurfaces at the worst possible moment.