If this seller is aware of defects and he fails to disclose then he is committing fraud. Even if a home is sold as-is the seller is still under obligation to disclose. And for the fact that this seller is an agent he is held to a higher standard than most sellers.
Why is he not listing his own house? Regardless, If he is a Realtor than he is a member of the National Association of Realtors and a local board; therefore, he has taken his ethics course and passed the test. Like that really means someone has ethics but it does mean that this person knows that they have a duty to disclose. If you know that this seller is blatantly misleading buyers then I would report him to the local board and to the real estate commission.
You could also contact their broker. If their broker is a broker of morals and ethics then he will investigate the situation to protect his company that this agent is representing. If he finds that this agent is intentionally not disclosing he could send his license back to the commission. This is a strong statement to commission.
There are going to be many agents that disagree with me; however, if will do not report agents that are conducting such behavior which hurts consumers then our industry will never be cleaned up!
So I will make a, one time exception.
Now that you have made this dilemma ,a matter of public record.
You may be on the "hook" for a little more than before this post..
I would consult with my Broker, and make sure I was covered by my E&O Insurance. In regards to the current seller, and future buyers.
Just my 6% worth.
Well you seem to be faced with a tough decision. I believe you to be ethical and straight forward from some of your previous posts. I would let the seller know that you are aware of his ethical situation and that if he doesn't rectify by "x" date that you will report him to the broker who has is property listed, or the board, depending on how hard you want to be. (I would not want to be in your shoes.) I would prefer this over just reporting him because it gives him an opportunity to do the right thing, and if you reported him without talking to him first, he would likely know it was you anyway. This way it is out in the open and honest. We should all hold each other accountable to do the right thing!
As Keith pointed below, the ethics issue lies with his current agent. I am sorry for your dilemna..
I thank you for being concerned. IMHO the truw ethics issue lies with the current listing agent. She is governed by the NAR Ethics guidelines regarding disclosure and the fiduciary duty to all parties. Also, she is governed by the associations MLS rules, depending upon what is disclosed. She should consult with the NJ Association of Realtors legal counsel.
So far as the seller goes, if the seller is a DRE Licensee, and a Realtor, the seller could certainly be in trouble on numerous counts. What I am unable to figure is why the seller, whom you said is licensed, would be allowed by their broker to sell their own property. In our office we are required to use another Realtor because our E & O insurance is not valid if we sell our own property.