28.3 AL – Misrepresentation
Topic 28.3: Misrepresentation
Misrepresentation is the most common lawsuit brokers face. This topic explains what misrepresentation is, how it can happen (including by omission), how Alabama’s caveat emptor rule works, and when sellers and brokers can still be liable.
What is misrepresentation?
Misrepresentation occurs when one party makes a false statement about the property or the transaction that affects the other party’s decision to enter into a contract. It usually involves statements of fact (not opinions or predictions).
- Misrepresentation can happen through a false statement or through omission (failure to disclose a material fact).
- There is also a duty to correct false statements or omissions—failing to correct them can be misrepresentation (often treated as negligent misrepresentation).
- Brokers are sued most often for misrepresentation; the second most common lawsuit is failure to disclose.
Types of misrepresentation (exam-friendly)
- Innocent: a false statement made without intent to deceive.
- Negligent: false information or failure to disclose significant defects due to carelessness or ignorance (includes failing to correct a false statement/omission).
- Fraudulent: intentionally hiding or lying about a defect to make the sale.
Best prevention: honest and timely disclosures.
Caveat emptor in Alabama (and the exceptions)
Caveat emptor means “let the buyer beware.” In Alabama, caveat emptor generally applies to the sale of used residential property, meaning the seller typically has no general duty to disclose physical condition issues to the buyer.
Three key exceptions (seller must disclose known defects)
- Fiduciary relationship exists between buyer and seller (a special relationship creating a duty to act in the other party’s best interest).
- Seller knows of a defect that poses a health or safety risk (example: lead paint, asbestos).
- Buyer asks direct questions about specific defects (example: pest infestation).
If the seller fails to disclose known material defects within these exceptions, the seller may be liable for damages and the buyer may sue for misrepresentation. Even so, under Alabama’s caveat emptor approach, proving liability can be challenging in some cases—especially when the buyer must prove the seller knew the defect posed a direct health/safety threat.
New homes: implied warranty of habitability
Caveat emptor generally does not apply to new homes because the builder/seller provides an implied warranty of habitability. To succeed in a liability claim under this concept, the buyer must be able to show the following:
- The buyer purchased a new home from the seller.
- The seller built the home.
- The home was not inhabited by anyone before the buyer’s purchase.
- The home was built for sale and sold in a defective condition that impaired intended use.
- The buyer was not aware of the defect and had no reasonable notice that would allow discovery.
- The defect decreased the home’s fair market value, causing damage.
Practical takeaway: whether it’s a used home (caveat emptor) or a new home (implied warranty), the safest move is still to disclose material defects.
Misrepresentation and broker/client liability
Who can be liable?
- Client liability: a client is generally not liable for misrepresentation made by the broker unless the client knows or should have known about it.
- Client can be liable if the broker is repeating the client’s misrepresentation (example: client lies about asbestos, broker repeats it).
- Licensee liability: a licensee is generally not liable for false information provided by the client/customer/another licensee—unless the licensee knows or should have known the information was false.
Best practice: Use honest, thorough disclosure and correct inaccuracies quickly. Many Alabama agents use a property disclosure form (even if not required) because it creates a clear record of what was disclosed and when.
Say What’s True
Choose the best answer for each question, then select Check Answers.
Which situation is most likely an example of negligent misrepresentation?
Failing to correct a false statement or omission can be negligent misrepresentation.
Alabama generally applies caveat emptor to which type of property sale?
Alabama generally applies caveat emptor to used residential property (with exceptions).
Great job! You have the key points of this topic down.
