Four words: (1) All (2) known (3) material (4) facts.
There might not be a real estate agent in the United States who hasn’t heard these four words.
A home where there was a recent murder? A warehouse where eminent domain is being discussed? A wooded property well known by neighbors to harbor ghosts? Yep, these constitute material facts which potential buyers of these properties would be entitled to know.
However, the courts in the United States are regularly applying the same standard to personal property. A car which was restored after being submerged in water? A gun used in a school shooting? A walk-in cooler that a serial murderer previously used to store body parts?
These are personal property facts potential buyers would be entitled to know as well. However, it’s rarely this simple. Let’s take a look at each word individually in regard to an auctioneer selling real or personal property and what disclosures are required:
All known material facts, versus only some or no material facts is fairly straightforward. However, facts concerning protected classes would be an exception. Was the gun owned by a woman? By a Hispanic? By someone with Iranian ancestry? These facts would necessarily not be disclosed. Disclosure of all other known material facts even trumps the seller’s legal direction to the contrary.
All known material facts don’t include things not known as Auctioneers can’t disclose something they don’t know. However, they can be held liable if it’s found the auctioneer willfully disregarded or purposely avoided knowledge. A seller can also be liable if known material facts are withheld.
All known material facts includes anything a typical buyer would consider important — and what any specific potential buyer asks about, thus indicating importance. The gun was used in a school shooting? Material by almost any measure. Gun was used in a suicide in 1954? Likely not generally material, but if a potential buyer asks, then it’s material to him, and thus subject to disclosure.
All known material facts concerns things reasonably known. It’s often argued that we really aren’t absolutely sure of anything — so there are no genuine facts. However, that’s not the standard. Likely true or widely recognized as true is considered a fact in this regard. Such facts can be couched within “According to …” to allow a buyer to further make their own determination of truthfullness.
A common misconception in this legal treatise regards material. Most auctioneers understand all, known and facts. But some argue that, “Well, I didn’t consider that important … so I didn’t have to disclose …” It’s not what the auctioneer necessarily considers material, but what the public — generally — would consider material.
Lastly, there may not be an auctioneer anywhere who doesn’t use the “as-is” disclaimer in terms and conditions. This disclaimer is used to place the burden of inspection on the bidder. If a gun has a missing part, with open and reasonable inspection opportunity, a buyer would have little recourse buying this gun “as-is.”
Disclosure of all known material facts in conjunction with an “as-is” clause can alter the actual disclosure mandate to “all known latent material facts” as the patent material facts are, by definition, easily discoverable and thus (constructively) “self-disclosing.” However, a buyer who is blind or otherwise impaired (or buying online-only) might not find a normally patent issue so easily ascertainable.
For an auctioneer considering whether or not to disclose something about either real property or some piece of personal property … it’s worth remembering the words “All known material facts” and see if any particular issue meets this criteria.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. He serves as Adjunct Faculty at Columbus State Community College, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.
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