A real estate non-disclosure agreement is a legal tool that’s commonly used in real estate...
A real estate non-disclosure agreement is a legal tool that’s commonly used in real estate transactions to protect the sensitive information, and interests of the parties involved. While these disclosures are typically one-sided documents, intended to protect the seller, they don’t have to be.
A properly worded and executed real estate non-disclosure agreement can be utilized to protect the seller’s interests, the buyer’s interests, and even the broker’s interests without creating an excessive burden on any of the 3 parties.
The Purpose of Real Estate Non-Disclosure Agreements
The purpose of real estate non-disclosure agreements is to protect parties involved in a potential real estate transaction. That protection can take many forms, depending on your situation and role within the transaction.
Typical real estate non-disclosure agreements are initially designed to protect the seller from having proprietary information spread to the public with no oversight. A prospective property seller doesn’t want to find themselves in a position where they are being inundated with telephone calls from random people with lowball offers. There may also be times when a seller doesn’t want tenants to know that a property may be sold in the near future, for fear of losing lease revenue on their commercial property.
From a broker’s perspective, a real estate non-disclosure agreement offers protection from a broker being cut out of the deal. A properly worded real estate non-disclosure agreement will stipulate the broker’s role in the transaction and will protect the commission owed for the broker’s work product. Without a binding real estate non-disclosure agreement or other valid contract, there may be no legal document proving the broker’s role in the transaction, and could result in the broker being cut out of the deal and losing commission payment. If you’re a broker, and asking yourself can a real estate agent be sued for misrepresentation, the NDA in real estate could be the answer to your concerns.
Some buyers may readily sign an offered real estate non-disclosure agreement in their haste to get an opportunity to purchase a property they desire. Others, however, may question the need for a non-disclosure agreement, and will need to have the benefits explained to them. Thankfully, a real estate non-disclosure agreement that protects seller, broker, and buyer is an easily achievable goal. Real estate lawyers will have the necessary skills to create a non-disclosure agreement that protect the interests of all involved parties. For a buyer, this might be income and expense information, or it could be their intended future use for the property in question.
Requirements for Binding Non-Disclosure Agreements in Real Estate
An experienced real estate attorney is your best choice for crafting a useful, binding non-disclosure agreement, as well as helping you with aspects of construction contracts that are often overlooked. There are just some situations when utilizing the professional services of a specialist is the wise course of action.
Your real estate non-disclosure agreement will need to carefully list all involved parties and their roles. For a mutual non-disclosure agreement, this could include the seller, buyer, broker, and perhaps even lender. All parties that will be part of the transfer of sensitive information for this transaction should, potentially, be included.
The information to be protected should be clearly defined for all parties. From a buyer’s perspective, this may be income information, or the intended utilization of the property after purchase. The broker will be concerned with ensuring their role is specified to ensure they don’t get cut out of a potentially lucrative deal. The seller could request several pieces of information be held confidential. These can include property income and expense information, environmental reports, appraisal data, lease information, or other proprietary business information.
The scope of the confidentiality obligation should be clearly defined. What steps should be taken to prevent the accidental disclosure of the protected information, and who will have access to it, should be detailed. A broad scope can help to protect the interest of the divulging party, and can provide an avenue for financial relief, should the agreement be violated.
You’ll need to ensure that any allowable exclusions are included in your agreement. In a real estate non-disclosure agreement, for example, some of the information considered protected, may need to be shared with a lender in order to finance the transaction. Often, county appraisal data is both publicly available, and easily searchable, however, the lender will likely request an official appraisal of the property in question.
You’ll need to establish clear terms for the length of the non-disclosure agreement. Your attorney, if you have one, will be able to help establish an acceptable term length for the agreement in question. This is particularly important from the buyer’s perspective, because often buyers are nervous about signing a non-disclosure agreement in the first place, and will need to have the benefits of it explained to them.
Basic Elements of a Non-Disclosure Agreement
The basic elements of real estate non-disclosure agreements will be similar in most situations. These elements are:
- Identification of the parties
- Definition of what is deemed to be confidential
- Scope of confidentiality obligation
- Exclusions from confidential treatment
- Term of the agreement
Identification of The Parties
In its most simple form, the non-disclosure agreement would contain the disclosing party’s name, and the name of the recipient. In more complicated cases, you may need to put some thought into who will need to have access to the sensitive, protected information, in order for the deal to be completed, and include those names and roles in the agreement as well.
Definition of What is Deemed to be Confidential
What information is to be deemed confidential will need to be clearly defined for each party. In a non-mutual non-disclosure agreement, this will simply be the information that the requesting party wants to have kept secret. In a mutual non-disclosure agreement, it can become a bit more complex and the involved parties may want to use the services of an experienced real estate attorney to draft the agreement.
Scope of Confidentiality Obligation
The recipient of confidential information has a duty to maintain the secrecy of the information for the divulging party. This could include limiting the number of team members with access to the information and safeguards to ensure the information isn’t accidentally leaked. The recipient of the confidential information also has an obligation to not use the protected information themselves to the detriment of the divulging party. A well-written non-disclosure agreement that is broad in scope will allow maximum protection for all involved parties in the event of a breach.
Exclusions From Confidential Treatment
Exclusions from the obligations of the recipient are written into most non-disclosure agreements. These are intended to address situations where it is unfair or too burdensome to expect the recipient to maintain confidentiality. These typically include information already known to the recipient, information already known to the public, assuming the recipient wasn’t the party who released it, and certain legal processes.
Term of The Agreement
This stipulates how long the agreement will last, and the confidential information protected. Most divulging parties would like to see the term be indefinite, yet most recipients will ask that a term limit be set. Most sensitive information disclosed in a common non-disclosure agreement situation will have a period of time after which it’s value decreases, perhaps altogether. The term of the agreement should be specified so that all parties understand the term of their obligations.
How Can an Attorney Help?
An experienced real estate attorney can help you through all aspects of a potential real estate transaction. This applies whether you’re the seller, the buyer, or even a broker who needs advice to pass on to their clients, or documents, like a real estate non-disclosure agreement, drafted to protect their interests in a transaction.
Your attorney will be able to draft a non-mutual non-disclosure agreement if you’re the seller of a property and simply want to protect your sensitive information, or they can draft a mutual non-disclosure agreement, in more complex situations, or when a buyer is reluctant to sign an agreement that doesn’t protect their interests as well.
They can also draft or review any contracts prior to signatures to ensure that your interests are being protected sufficiently in any given situation. A real estate attorney will be able to help guide you through the sometimes incredibly complex, process of making a large real estate purchase. When you’re making one of life’s largest purchases, it pays to be well-educated and prepared by a professional prior to completion.