Puffing in real estate is when a seller makes exaggerated claims to try to attract more buyers. These usually highlight the aesthetic qualities of the property, not hard facts. They are often exaggerations and sometimes outrageous. You should remember, though, that they are:
- Opinions about the property
- Not fraudulent
Pufferies can be frustrating, and sometimes they are fun. They are not illegal unless they are not factually correct and/or deceptive.
Difference Between Puffing in Real Estate and Misrepresentation
The difference between puffing in real estate and misrepresentation is not precise, but it depends on the honesty of the seller. From a legal point of view:
- Puffing is legal because it expresses and opinion
- Misrepresentation is a fraud because it lies about material facts
Where do you draw the line between an exaggerated opinion about the property and fraud? That can be tricky. Often, you can tell immediately that the language is hyperbole, not deceptive. However, as a seller’s statements get more precise, they become more deceptive and fraudulent. At what point these statements become fraud is not clear.1
Is puffing in real estate illegal?
Puffing in real estate is not illegal. Let’s face it if you held all salespeople accountable for outrageous sales pitches all of them would be in jail. Some of you may think that’s a good idea, but we don’t throw people in prison for ridiculous opinions.
What we do throw people in jail for, though, is deliberately misleading others. Fraud is a very serious crime, and it depends on the seller’s intent. If they intend to deceive you it is no longer puffery but a fraud.
Sue a Realtor for Lying?
You can sue a realtor if you can prove that he/she lied. That is not enough, though, because the lie must be about something that you had no way of knowing. A couple of examples may help.2
A realtor takes you to a house, and you notice the carpets are ugly and old. You tell the agent that you intend to rip up the carpet and ask what is under it. The agent tells you that hardwood is under. It affects your decision because you like hardwood floors.
However, when you rip up the carpet after buying the house you find concrete. Can you sue the agent? The answer is maybe. If they knew that it was a concrete floor, they are liable; but can you prove that they knew? If the seller knew, then they are liable. However, maybe when they bought the house that the seller told them the same thing and they never looked under the carpet.
You look at a house and like it, but you have children and want to be close to a school. The agent tells you that yes there is a school close by. It affects your decision to buy a house.
You find out later that the nearest school is several blocks away, not walking distance. Can you sue the agent? No, you can’t. Close can mean different things to different people. You may feel that he/she deceived you, but its opinion about what is a reasonable distance.
Misrepresentation in Real Estate
Misrepresentation is when the agent misstates a material feature of a property. It is the flip side of failure to disclose, which is neglecting to reveal a material feature. Common issues include:
- Foundation and/or other structural problems
- Property boundaries
- Termite or other pest problems
- Title issues
- Environmental problems
While there are contingencies built into the contract for buyers to learn about and address these issues, there are times when problems go unnoticed. If the seller or agent knew about these problems and either didn’t disclose them or lied about them you have grounds to sue them for misrepresentation.3
Three Types of Misrepresentation
There are three types of misrepresentation: innocent, negligent, and fraudulent. The penalties for misrepresentation depend not only on the type but also:
- The circumstances of the transaction
- The consequences of the reliance on the information
Relief ranges from simply rescinding the contract to monetary damages. The greater the agent’s duty to the client the greater the damages can be. Even an innocent mistake can have dire consequences for the client and the agent.4
Innocent misrepresentation occurs when the seller or agent believes at the time to be true. Later, though, the buyer learns that it is false. The seller or agent does not:
- Intend to mislead
- Have any duty to investigate the accuracy of the statement
We can use the flooring example above to demonstrate this type. The seller bought the house with a carpet on the floor. Their seller made a point to tell them hardwood was under, but they didn’t care because they liked the carpet.
After living in the house for a long time, they know the carpet needs to go, so they tell the new buyer what they heard when they bought the house. The seller does not intend to mislead, and they had no reason to ever look under the carpet. However, it is a factual misrepresentation and does affect the buyer’s decision. Therefore, it is illegal.
Negligent misrepresentation occurs when the seller or agent makes a false statement but has no basis to believe it is true. The seller or agent does not:
- Intend to mislead
- Conduct due diligence to learn the truth
This is a higher level of fraud. As an example, we will go back to the flooring question. In this case, we have a lazy real estate agent who doesn’t even ask the seller what type of flooring is under the carpet. The agent knows that most homes in the area have wood floors, so they assume that this home does too. The agent perpetrates this because of negligence.
Fraudulent misrepresentation is the most serious of the three. The seller and/or agent purposely misstates a fact in order to induce a person to buy. The seller and/or agent:
- Intend to mislead
- Knowingly lies about a fact
We will use the flooring example again to illustrate this. The seller knows that the buyer wants to rip up the carpets and install hardwood floors, so they lie to the buyer. They tell the buyer that beautiful hardwood floors are underneath. All the buyer must do is sand them down and refinish them, and they will have beautiful floors at almost no cost.
This is fraudulent because the seller knows the flooring is concrete. They lie with the intent to mislead and induce the buyer to commit to the transaction. This, obviously, has the direst legal consequences of the three.
Remedy for Misrepresentation
The remedy for misrepresentation depends on several factors. They include:
- Type of misrepresentation
- Circumstances of the transaction
- Consequences of reliance on false information.
We used flooring as an example to show the relative importance of the types. The deviousness of the seller determines the remediation.
Circumstances play a part as well. While flooring may seem like a big deal, an unsound foundation is a much bigger problem. Environmental problems like a leaking underground oil tank are very expensive and take years to correct. The bigger the problem, the larger the judgment.
Finally, the consequences play a role. You won’t need to tear down the house because of the flooring. You might, however, need to if the foundation problem affects the integrity of the structure. If there is radon, you may not be able to live in the house. Dire consequences lead to greater compensation.
Final Thoughts about Puffing in Real Estate
Puffery is common in any sales. We often laugh at overexaggerated claims by slick salespeople. It’s no different when you buy a house. You may read an ad for a quaint, secluded home perfect for a couple by a gently flowing stream. However, when you get there you may find a run-down shack in the middle of nowhere by an ugly creek.
Is the listing wrong? Is it misleading? Maybe. It’s in the eyes of the beholder, though. Whether it is quaint or run-down, home or shack, by a pleasant stream or ugly creek are all opinions. You cannot hold the seller or agent legally responsible for those types of misrepresentations. The reason is you can see for yourself what the condition is.