Sellers use disclosure to their advantage

Forty years ago, seller disclosures weren’t part of the home-buying process. The rule of the game was buyer beware.

Now most states have seller disclosure requirements, although they vary from one state to the next. Consult with a Realtor, the Department of Real Estate, or a real estate attorney in the area where you’re buying or selling if you have questions about what a seller is required to disclose.

Seller disclosures came into being in order to protect home buyers. However, seller disclosures can also protect sellers. For example, a seller of an older home in the hills of Oakland, Calif., disclosed in writing that the basement flooded during heavy rains.

A few months after the sale closed, the listing agent received a call from the buyer. He was upset that there was water in the basement following an overnight rain storm. He insisted that no one had informed him of this situation before he purchased the property.

The listing agent reviewed the transaction file. The sellers had disclosed in writing that the basement flooded during heavy rains. The buyer had signed to confirm receipt of this information before he removed his inspection contingency from the contract.

What could have been a nasty lawsuit disappeared immediately.

During times when it’s difficult to sell, sellers may be tempted to conceal negative information about their homes for fear that it will keep the home from selling. Sellers should resist this temptation. Concealing a material fact can have severe consequences.

Another seller stated in his seller disclosures that he had never had any water problems at the house. He had also remodeled the basement and presented it as a usable family room. Not long after the buyers moved in, bad weather set in. So much water ran into the basement that the cozy family room was uninhabitable. The buyers sued the seller and recovered a hefty sum.

HOUSE HUNTING TIP: Think of disclosure as damage control. Although this may seem counterintuitive, you want any negative information affecting the property to be revealed before, not after, the home sale. If buyers know that the roof is at the end of its life, they can make a determination before buying about how much they can pay for the house, or if they can even afford to buy it without help from the sellers. Problems arise when sellers withhold this sort of information.

A less-than-candid seller was sued successfully by the buyer when the roof leaked soon after closing. The seller’s disclosure statement mentioned no problems with the roof. The new owner became friendly with his next-door neighbor who told him that the seller had talked to several roofers and was planning to re-roof the house before the rainy season. What you choose to conceal could be disclosed for you by a neighbor.

The goal in selling your home is to sell for the best price and on the best terms possible. You defeat the purpose if you end up having to pay back part or the entire sale proceeds to settle a lawsuit.

It’s not always clear if a fact is material. For example, the sellers of a home in the trendy Rockridge neighborhood in Oakland knew that a cleaning person who worked for the past owner had been raped in the house. The seller, who was an attorney, decided to disclose this fact. This caused a nervous single woman to decide against buying the house. But, it made no difference to the ultimate buyer.

THE CLOSING: And, the disclosure had no negative impact on the selling price.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide," Chronicle Books.

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