Required Disclosures When Selling Real Estate

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 What Are Real Estate Disclosures?

When selling property such as real estate, the law requires that the owner disclose certain information to the buyer. This information includes any material defects, as well as any problems that are associated with the property. In many states, the owner could be held legally liable should they fail to disclose this information to the buyer upfront.

Additionally, the seller is legally forbidden from concealing any known material defects from the buyer. What constitutes a material defect can vary from state to state, and will be further discussed below.

Generally speaking, a material defect is any fact that may have significant and reasonable impact on the market value of the property. A material defect may also be defined as any condition that poses an unreasonable risk to other people. Additionally, any zoning issues, environmental hazards, and easement violations must be disclosed by the owner prior to selling the property.

It is important to note that, generally speaking, you only must disclose the facts that are within your knowledge. This is because there is no duty to inspect the property in order to discover unknown defects. However, there are some specific problems that you may be responsible for, whether you are aware of them or not. If you are unsure of whether a defect must be disclosed, it is generally advised that you disclose it, as it is illegal to fraudulently conceal major physical defects.

States are requiring considerably more disclosure upon sale, and each state has its own “mandatory disclosure laws” which dictate what must be disclosed. Additionally, most states have specific disclosure forms that the seller must complete, and the buyer must acknowledge receipt of.

What Is Required For Property Owners To Disclose?

To reiterate, property owners are only required to disclose any information that is within their personal knowledge. What this means is that sellers are not required to hire an inspector in order to discover any problems that the property owner did not know existed.

However, if a seller does hire an inspector and that inspector then discovers numerous defects, the seller is legally obligated to disclose those defects to any potential buyers. Additionally, the seller may only be held liable for failing to disclose if the buyer exercised reasonable diligence when inspecting the condition of the property.

It is important to note that a buyer may not later sue the seller for material defects that they should have identified during a preliminary inspection. Additionally, buyers may not later sue the seller if they were aware of the defects prior to the completion of the sales transaction. Seller’s agents, or brokers, are also responsible for disclosing any defects. These parties must disclose all known material defects to the buyer, as well as any limitation on the ability of the seller to complete the transaction.

As was previously mentioned, what constitutes a defect that must be disclosed varies from state to state. Generally speaking, a seller must disclose material and dangerous defects that impact the fair market value of the property.

Some of the most common examples of what a seller must disclose when selling their property include:

  • Leaking roof or ceiling;
  • Foundation cracks;
  • Termite damage and infestations;
  • Other pests, such as rodents or insects;
  • Flooding or flood damage, such as in the basement;
  • Any known toxic conditions, such as asbestos ceilings, mold, lead paint, etc.;
  • Whether the home is exposed to any naturally hazardous conditions, such as being located in a flood zone or on an earthquake faultline;
  • Any deaths which occurred on the property within the last three years. It is imperative to note that this requirement to disclose may vary depending on the state in which the property is located;
  • Faulty electrical wiring; and/or
  • Various mechanical problems, such as those associated with heating and air conditioning.

Neither the seller nor the seller’s agent may actively conceal any defects. An example of this would be a large crack in the foundation that is only visible by inspecting the property’s crawl space. As such, if a buyer wishes to inspect the crawl space but the seller’s agent denies access, claiming that the crawl space is locked and inaccessible while also assuring the buyer that the foundation is fine, the seller could be found to have actively concealed the defect.

This is especially true if the seller’s agent is aware that the foundation is compromised. As such, the buyer will most likely have a legal claim against the seller and/or the seller’s agent for actively concealing a defect.

How Can A Seller Avoid Legal Liability?

The best and most obvious way for a seller to avoid legal liability is to err on the side of disclosure. What this means is that if the seller is unsure in terms of what constitutes a required disclosure, they should attempt to avoid liability by disclosing all that they are aware of. Sellers should also educate themselves in terms of their state’s specific laws regarding disclosing defects, and what all that includes.

Another way in which to avoid legal liability is to conduct an inspection and disclose the results to all potential buyers. The results of the inspection should be provided to all interested buyers in the form of a report, so that all interested buyers may make an informed decision.

As was previously mentioned, some states may require a disclosure form, which would provide additional legal protection to the seller as well as relieve them of legal liability. Along those same lines, a seller may want to provide written disclosure whenever possible. If a buyer purchases a home and later discovers a major defect, they may be able to sue the seller or seller’s agent for negligence, fraud, and/or misrepresentation, among other causes of action.

The buyer may also place a clause in the purchase contract, stating that the sale of the property is contingent upon the completion of a property inspection, which is to be conducted by a qualified professional at the seller’s expense. In the event of a lawsuit, the buyer may be awarded damages. Additionally, they may be entitled to have the seller, or any other involved party, pay to repair the dangerous condition.

What Else Should I Know About Property Disclosure Statements?

Buyer Beware states require sellers to disclose very little information regarding the home. These disclosures are limited to items that are considered to be a serious health and safety concern, such as lead-based paint or asbestos. The buyer is responsible for determining whether there are any problems with the property.

Sellers generally complete disclosure statements when they list their home for sale by using standard forms, which generally consist of simple yes or no questions or check boxes. These forms also include space to elaborate or provide more details regarding the disclosures. Some states have separate forms that are specific to items such as lead-based paint, or termites.

The completed property disclosure statement is given to the buyer once the seller has accepted their offer to purchase the property. The buyer may then withdraw their offer and have their earnest money deposit returned, if they find a defect within the disclosure statement that impacts their desire to purchase the property. Buyers may also use disclosures in order to renegotiate the purchase price.

Do I Need An Attorney For Issues With Required Disclosures When Selling Real Estate?

Whether you are buying or selling real estate, you should consult with an experienced and local real estate lawyer.

An attorney will be best suited to guide you through the disclosure process according to your state’s specific laws. An attorney will also be able to represent you in court, as needed.

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