Dos and don'ts of seller disclosures
It's best to avoid diagnosing defects
By Bernice Ross, Thursday, July 16, 2009.
Flickr photo by marcusrg.Almost every state in the U.S. requires both sellers and their agents to make disclosures about the condition of the for-sale home. How you make these disclosures can move your transaction forward or land you in a lawsuit.
The company I worked for in California once did a study to determine the factors that were most likely to result in litigation. There were three primary predictors: real estate clients who are attorneys, new construction, and hillside properties. They also found that the closer the property was to Century City (where there was a high concentration of attorneys), the more likely we were to be sued.
To avoid litigation when you sell your home, it's important to make a full and accurate disclosure about the condition of your property. When Realtors represent a seller, they typically use mandated forms from either their state or local association of Realtors.
Even with the forms, it's hard to know what to disclose. For example, do you have to disclose that the upstairs window is painted shut? What about that ceiling fan that works all right on the first two speeds but makes a terrible racket when you turn it on high? Is it necessary to disclose the 500 pounds of honey they pulled out of your attic last year because a huge colony of bees built a hive there?
Because there was such a high probability of being sued in Southern California, our company policy was that if you have to ask, "Do I need to disclose that?" the answer was always "yes."
An even greater challenge is selecting the correct language to use in making the disclosure. When speaking to a buyer or to your agent, you must be careful about what you say.
For example, a seller who had owned a property for a long period of time told the buyer that the property line was at the fence. The buyer purchased the property and was going to do a major remodel. When he had the property surveyed for the new building permit, it turned out that the fence was actually sitting on the neighbor's property.
It was off by 1 foot. The property line was 220 feet long. That mistake, due to the pricey nature of the area, cost the seller more than $100,000. If the seller was unsure about the location of the property line, the seller should have responded, "I don't know exactly. To determine the exact location, order a survey."
I once had a listing where there were brown spots on the ceiling. Everyone assumed there was a roof leak. The roofers couldn't find any evidence of a leak. What they did find was a huge beehive. Honey from the hive was leaking through the ceiling. If the cause was unknown, it would have been best to simply state, "brown spots noted on the master bedroom ceiling."
The way to properly disclose any type of issue with your property is to avoid attempts to diagnose what you do not know. In other words, unless you are a construction expert (and even then if you are the seller), it's best to note what you observe without guessing at the cause. Instead of saying that "the roof needs to be replaced," a better response is to state, "Damaged and missing shingles noted on roof." ...CONTINUED
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Submitted by Rich Johnson on July 16, 2009 - 1:18pm.
Bellingham is a town of about 75,000 people. In the Quest Telephone Directory there are 44 pages devoted to attorneys while only 25 to physicians.
Every agent in town needs to read your article.
Rich Johnson
360-319-3267
http://www.johnsonteamrealestate.com
http://www.johnsonteamrealestate.com/blog/
Submitted by Gail Tassey on July 16, 2009 - 1:49pm.
In today's society of sue-happy people and the blame game of "its not my responsibility to .." it is best to go by the words you spoke, if in doubt do disclose, disclose and disclose.
Submitted by Lenore & Alex Wilkas on July 16, 2009 - 8:52pm.
Your suggestion to have the inspections done up front is an important one and something that is done regularly in our market, the San Francisco Peninsula. When the seller pays for inspections (physical and pest) up front, the buyer is able to see what issues there may be, if any. If they have questions, they are free to have further inspections done on their own, and some people do if the inspector was not thorough or issues appear to need them. It's a good way to conduct business but rare for other parts of California. We do not renegotiate once a contract has been accepted because we generally don't need to. The seller has disclosed everything and the buyer feels comfortable in knowing this.
It works with most attorney's too. They can't complain if the work was already done.
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Lenore Wilkas
Prudential CA Fine Homes International
www.SanMateoRealEstateNews.com
Submitted by Ken Lampton on July 17, 2009 - 6:18am.
Bernice says "In most states, you are probably obligated to disclose the report to future buyers." But what if you don't have a copy of the report?
Some listing agents in my market refuse to accept copies of inspection reports. When my buyer sets up an inspection, these agents contact me in advance to instruct me not to send a copy of the inspection report. They think this protects their seller from having to pass a copy on to future buyers if my buyer terminates the contract due to repair issues.
This seems like scandalous behavior to me. It seems to open the door to big lawsuits in the future. Hopefully this practice will not become commonplace.
Can anyone tell me whether this is going on in other parts of the country?
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Ken Lampton, CRS
RE/MAX About Dallas
http://www.m-street-dallas.com/
Submitted by Mary Pope-Handy, CRS, ABR, E-Pro, SRES on July 17, 2009 - 7:37am.
Great tips for sellers, but also for agents! In California we realty licensees must also do a "diligent visual inspection" and note any items of concern in writing. Sometimes, real estate professionals go too far in assigning a cause to a problem, such as "lifted concrete caused by tree roots" or "cracked driveway due to ...." when instead, they should just note the condition and not attempt to diagnose. Further, it would be best, as much as possible, to avoid minimizing comments just as "minor crack" - better is "crack appx 2 inches long". What's minor to you may not be minor in front of a judge.
Finally, regarding the haunting issue, I totally agree with you that it's best to state what is experienced rather than stating that a home is haunted. However, if you hear disembodied voices or see an apparition on the staircase, make it clear to the buyers so they aren't surprised upon moving in that the sellers didn't take everything with them when they left! The best way to avoid being sued it to prevent the buyer from any unpleasant surprise. Or as Holiday Inn used to quip, "the best surprise is NO surprise".
Mary Pope-Handy
Luxor Real Estate Group
Co-Author, "Get the Best Deal When Selling Your Home in Silicon Valley"
www.ValleyOfHeartsDelight.com (site)
www.LiveInLosGatos.com (blog)
Submitted by Bernice Ross on July 17, 2009 - 8:14am.
Bernice Ross, CEO of www.RealEstateCoach.com, home of this year's number #1 selling book at NAR--Real Estate Dough--Your Recipe for Real Estate Success
Thanks for all the great comments. Ken, you raise an interesting issue. If the agents are playing "hide the report," then they are probably violating a number of disclosure laws. It would be smart to contact the attorney for your local Board or state association to see what is required on your part as well as on the part of the listing agents. I would then send that response to the agent and to the supervising broker. If the agents remain in violation, turn the issue over to the Board or Association for further action.
Mary, your comments were excellent in terms of how to disclose. "Just the facts"--2 inch crack, not a "minor" crack which is judgment. In terms of an apparition, if you really did see one, better check with your attorney on how to make the disclosure. If you don't disclose the issues, you could be sued. On the other hand, it you do disclose the issue and it "leaves" with the sellers, you could also have an issue as well if someone wanted to live in a haunted house. (Don't laugh--I had a physicist client who wanted to find such a property!)