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
We had several cases where our sellers were convinced that their house was haunted. Saying in writing that your house is haunted is probably not a great idea. Again, the best approach would be to avoid diagnosing. Instead, make objective observations. For example, note that "lights flicker at night"; "the upstairs hallway becomes unusually cold for short periods of time, even in the summertime"; or "rustling noises noted in the attic and in the garage."
In these examples, the flickering lights could be due to an electrical problem; the unusual cold could result from a malfunctioning heating and air conditioning system; and the rustling noises could be rats or raccoons that have found their way into the home.
My experience has been that buyers will buy almost anything, provided that it’s disclosed upfront. In fact, when I sold my last two properties, we paid to have our own physical inspection prior to listing the property. We also completed the repairs before we put the property on the market.
Our agent had a copy of the inspection report available for any buyer who wanted to see it. We also had all the receipts demonstrating the repairs had been made by a licensed contractor.
The challenge with doing an inspection ahead of time is that it can uncover major problems. It may be that your roof does need to be replaced or that the foundation needs to be reinforced. By doing your inspection ahead of time, you won’t be ambushed by the discovery of a major problem while your property is under contract. You will need to disclose your report, however.
The situation is even more challenging when the buyer conducts an inspection and then cancels. In most states, you are probably obligated to disclose the report to future buyers. This is another reason it’s smart to do your own report and address the issues ahead of time.
Remember, when it comes time to make disclosures about your property, avoid diagnosing, tell the truth, and order a home warranty to give yourself an extra degree of protection after the property closes.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.
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