Generally speaking, a seller only has to disclose defects which are within their personal knowledge. However, a seller’s duty to disclose defects is often governed by state law so it is important to check your state’s property and real estate laws before selling your house.
A seller is not required to bring in a general contractor to look for defects but a seller may hire a general contractor to become aware of all the defects and the potential cost of repairs and also to help in preparing any required disclosures.
What Type of Defects Need to Be Disclosed?
Sellers are required to disclose defects which they had knowledge of at the time of purchase and these are also known as latent defects. However, defects which sellers do not have knowledge of but which they could discover if they made a reasonable search are known as patent defects and sellers are not required to disclose them unless they actually made the search and were aware of these defects.
Sellers have to disclose defects which are material which means that they affect the value of the property or they would affect the buyer’s decision. Some examples of material disclosures and defects include:
- Roof leaks and leaks that result in water accumulation.
- The tendency of the property to flood.
- Unpermitted improvements.
- Building code violations.
- Defects regarding the property’s walls, floors, ceiling, roof, windows, insulation, foundation, electrical systems, plumbing systems, fences, sidewalks and/or other structural aspects.
- Issues regarding the neighborhood.
- Any other factors which may influence the buyer’s decision.
What is the Duty to Disclose Under California Law?
Because the duty to disclose defects is often governed by state laws, the requirements can vary depending on the state that you live in. In some states, sellers are only required to disclose known defects with a property if they are specifically asked about them.
However, the rules in California are much more stringent and a seller of real property has to disclose any known defects which materially affect the value of the property or which affect a potential buyer’s desire to purchase the property.
Under California law, the seller has an affirmative duty to report any defects and the buyer does not have to ask about the conditions on the property to learn of such defects. Whether a defect is considered material depends on the characteristics of the property and the statements made by the buyer to the seller.
If the buyer would not have purchased the property if they had been properly informed of the defect, the defect is generally considered material. Also, the duty is ongoing in nature so the seller is required to report any problems until escrow closes and the seller must also provide a transfer disclosure statement to the buyer which provides a checklist of some of the most commonly experienced conditions on the property and required disclosures.
What are the Penalties for the Lack of Adequate Disclosure?
For example, under California law, many different remedies are available to a buyer if the seller did not provide proper disclosure. If the buyer can prove that the seller had known about a defect but failed to disclose it, the buyer may be entitled to the following damages:
- Compensatory Damages: These are the out-of-pocket expenses which the buyer incurred and a court may award a buyer reimbursement for any payments made to a contractor to correct the defective condition. Also, a court may award the decrease in property value because of the defect and the buyer may also be able to recover damages for lost profits in some situations.
- Punitive Damages: Buyers can also recover punitive damages for cases which involve egregious conduct. These damages are in addition to compensatory damages and they are meant to punish the seller for the wrongful conduct and to deter similar conduct in the future.
- Equitable Relief: This is a remedy in which the court may order the seller to do or not do something rather than provide monetary damages. For example, the buyer may request specific performance from the seller which means that the court would order the party which sold the property to correct a condition which was discovered after the sale. Another type of equitable relief is to rescind or cancel the contract completely in which case the buyer would receive their money back but would no longer own the property.
Should I Contact a Lawyer?
If you are considering buying or selling a property and you believe that the seller was not honest in disclosing defects of the home, then it would be beneficial to consult a local real estate attorney before proceeding. It's important to first contact the real estate agent and ask if there are any withheld defects, to find out if there is any other information and remedies you might have before contacting a lawyer.