What Happens When Buyers Make Misrepresentations During a Real Estate Purchase

Sellers are required to disclose certain defects in real estate under Arizona law, and can be found responsible for fraud or misrepresentation if they fail to make the necessary disclosures. Buyers, and the other hand, have their own responsibilities during a real estate purchase. Real estate agents may also be required to disclose certain information about their clients, even to the opposing party in the deal.

A Buyer’s Obligations During a Real Estate Purchase

If a buyer misrepresents their financial capacity during a real estate purchase, it could prevent them from obtaining financing, which is often a contingency clause in the real estate purchase contract. At this point, the seller may have a few different options.

The seller may be entitled to keep the earnest money deposit. However, if the buyer made a good faith and diligent effort to obtain financing and was unable to do so, the deposit must usually be returned. The dispute will come down to whether the buyer actually made a good faith effort to obtaining financing, but the buyer will usually be able to get the earnest money deposit back.

The seller may also simply decide to find another buyer and move on. This will depend on various factors, and an experienced real estate lawyer can help determine the best course of action in this situation.

Obligations of Buyer’s Real Estate Agent

The Arizona Administrative Code, Title 4, Chapter 28, describes the obligations of real estate agents. While real estate agents owe a fiduciary duty to their client, they are also required to deal fairly with all other parties to the transaction, even though these other parties are not clients.

Specifically, the opposing party can pursue a claim for negligent or intentional misrepresentation if the realtor lies, misconstrues, or fails to disclose certain facts. The disclosure requirements extend to all parties, and require a licensed realtor to disclose any information that the buyer or lessee may be unable to perform on the contract.

The Arizona Supreme Court has stated that a buyer who represents himself as ready, willing, and able when he is in fact experiencing financial difficulties that threaten the sale is violating the duty to deal fairly under the contract. Lombardo v. Albu, 199 Ariz. 97, 99, 14 P.3d 288, 290 (2000). When the buyer’s agent knows of these financial difficulties, he or she has a duty to disclose them to the seller. In other words, if the buyer has a duty to disclose, the buyer’s agent also has that duty, and may face liability for failing to do so.

Chernoff Law handles business and real estate litigation matters, including disagreements arising out of the purchase or sale of real estate in Arizona. Contact us to discuss your case with an experienced real estate attorney.